The Services NZ PSI for November 2025 registered 48.70, marking a slight rebound from October’s 48.30 but remaining below the 50 expansion threshold. This signals ongoing contraction in the services sector, albeit at a moderated pace. The reading is consistent with a cautious economic environment amid tightening financial conditions and external uncertainties.

Drivers this month

• Moderate recovery in business services and logistics sectors contributed 0.40 points.
• Persistent weakness in hospitality and retail services sub-sectors dragged the index down by -0.30 points.
• Export-related services showed resilience despite global headwinds.

Policy pulse

The PSI remains below the neutral 50 mark, reinforcing the Reserve Bank of New Zealand’s cautious stance on monetary tightening. Inflation pressures have eased slightly, but subdued services activity supports a wait-and-see approach to further rate hikes.

Market lens

Immediate reaction: The NZD/USD pair dipped 0.15% in the first hour post-release, reflecting tempered optimism. Short-term NZ government bond yields edged down by 3 basis points, signaling modest easing in market expectations for aggressive monetary tightening.

The Services NZ PSI’s November reading of 48.70 contrasts with the February 2025 peak of 50.40 and the June trough of 44.00. The 12-month average stands at approximately 48.70, indicating a persistent contractionary trend in services over the past year. This aligns with broader macroeconomic indicators showing slowing GDP growth and subdued consumer spending.

Monetary Policy & Financial Conditions

Monetary tightening since mid-2025 has raised the official cash rate to 5.50%, the highest in over a decade. Financial conditions have tightened, with mortgage rates rising above 6%, dampening household demand. The PSI’s contraction reflects these pressures, especially in consumer-facing services.

Fiscal Policy & Government Budget

Fiscal policy remains moderately expansionary, with the government maintaining infrastructure spending and targeted support for export sectors. However, limited fiscal stimulus has constrained offsetting demand in the services sector, contributing to the subdued PSI readings.

External Shocks & Geopolitical Risks

Global supply chain disruptions and geopolitical tensions in the Asia-Pacific region continue to weigh on export services. The PSI’s relative resilience in export-related services suggests some adaptation, but risks remain elevated, especially with ongoing trade uncertainties.

Drivers this month

• Business services: 0.25 points MoM, reflecting stronger demand for professional and technical services.
• Logistics and transport: 0.15 points MoM, boosted by export activity.
• Hospitality: -0.20 points MoM, impacted by cautious consumer spending and labor shortages.
• Retail services: -0.10 points MoM, pressured by inflation and higher borrowing costs.

Market lens

Immediate reaction: NZD/USD weakened by 0.15%, while 2-year government bond yields fell by 3 basis points. Breakeven inflation rates held steady, indicating market confidence in the Reserve Bank’s inflation targeting despite subdued services activity.

Looking ahead, the Services NZ PSI suggests a cautious outlook for the sector and the broader economy. The following scenarios outline potential trajectories over the next six months:

Bullish scenario (25% probability)

• Global trade tensions ease, boosting export services demand.
• Monetary policy stabilizes, with no further rate hikes after Q1 2026.
• Consumer confidence rebounds, lifting hospitality and retail services.
• PSI rises above 50 by mid-2026, signaling expansion.

Base scenario (50% probability)

• Gradual improvement in services activity amid persistent financial tightening.
• Monetary policy remains on hold with cautious data monitoring.
• Export services remain stable but vulnerable to external shocks.
• PSI fluctuates around 48-49, indicating ongoing mild contraction.

Bearish scenario (25% probability)

• Geopolitical risks intensify, disrupting trade and supply chains.
• Further monetary tightening to combat inflation pressures.
• Consumer spending contracts sharply, deepening services sector weakness.
• PSI falls below 47, signaling accelerating contraction.

Policy pulse

The Reserve Bank is likely to maintain a cautious stance, balancing inflation control with growth risks. Fiscal policy may need to play a larger role if services sector weakness persists.

Market lens

Immediate reaction: Market participants are pricing in a stable OCR path with limited upside risk. NZD volatility is expected to remain moderate as investors digest mixed signals from the services sector.

The November 2025 Services NZ PSI reading of 48.70 underscores a services sector still in mild contraction but showing tentative signs of stabilization. Monetary tightening and external risks continue to weigh on activity, while fiscal policy offers limited offset. The sector’s trajectory will be critical for New Zealand’s overall economic momentum in 2026.

Structural & Long-Run Trends

Long-term, New Zealand’s services sector faces structural challenges including labor shortages, digital transformation, and shifting consumer preferences. The PSI’s recent volatility reflects these underlying trends, which will shape policy and investment decisions in the years ahead.

Financial Markets & Sentiment

Market sentiment remains cautious but not pessimistic. The PSI’s near-term movements will influence NZD exchange rates, bond yields, and equity valuations, particularly in sectors linked to domestic consumption and exports.