Indicators forecast economic growth
New Zealand's strongest service sector performance since October last year could signal falling unemployment and economic growth of as much as 5 per cent in the next year, according to the latest BNZ-BusinessNZ survey.
The Performance of Services Index (PSI) for July was 58.1, up three points from June and the highest level of activity since October 2012.
A result above 50 indicates services activity is expanding, while an index below 50 is indicative of a contraction.
July's value was the highest recorded for the month since the survey began in 2007, and the most positive overall since October last year.
New orders in the services sector, a category of the PSI, were particularly strong, increasing 3.2 points from June to 63.1.
This was the highest level since November 2007, and was reinforced by strong activity and sales results, which were up 4.2 points to 61.8.
BNZ economists said the PSI results added to the story of accelerating economic growth.
"Indeed, the chances of getting 5 per cent GDP growth over the coming 12 months cannot be taken lightly," BNZ said.
Employment in the PSI was less strong, but still improved from June to reach 52.2.
This combined with a 53.1 employment figure in the Performance of Manufacturing Index from last week.
BNZ senior economist Craig Ebert said together the two figures showed a positive trend for employment after some weaker signs in June.
"It's always the case that employment has to lag because firms have to wait and see if it's going to continue."
He said stronger jobs growth could therefore be seen from late this year onwards, with next quarter's employment numbers much the same as June 2013.
Statistics NZ has recorded the country's unemployment rate for the June quarter this year at 6.4 per cent.
Ebert said the employment indices of the PMI and PSI were not strong but at least positive and consistent.
"The bigger point is if we can believe the GDP stuff and if we trust the usual lags to employment then the size of the jobs growth might put more obvious downward pressure on the unemployment.
"So instead of going down by decimal points it might go down by bigger and bigger chunks."
BNZ said leading indicators in the economy indicated GDP growth of between 4 and 5 per cent was not out of the question.
Many people were far from thinking along the lines of these sorts of numbers, however, Ebert said.
BNZ's own growth forecast peaked at 3.4 per cent and the Reserve Bank's at 3.6 per cent.
"We're not forecasting it; we're just saying it's a possibility, the way the trends are going."
He said GDP growth of 5 per cent was dependent on no more external or internal shocks to the economy.
"We presume there won't be another drought domestically."
- © Fairfax NZ News