Insights 
VT 
The New Zealand services PMI, known as the BusinessNZ Performance of Services Index, registered 48.5 in April 2025. This marks a decline from March’s 49.1 and is below the survey’s long-term average of 53.0.
The sector is reportedly in mild decline, despite discussions about an economic recovery. New Zealand’s PSI has underperformed compared to other key trading partners.
Manufacturing Performance
In contrast, the New Zealand Manufacturing PMI for April demonstrated growth, rising to 53.9 from the previous 53.2.
While April’s Manufacturing PMI presents a rare bright patch at 53.9, services continue to falter — slumping to 48.5, which places the index distinctly below the expansionary threshold of 50. The fall from March’s 49.1 is subtle but persistent, reinforcing a broader pattern that’s been unfolding for several months now. With the long-term average sitting at 53.0, it’s evident that this isn’t just temporary or driven by one-off distortions. Rather, we are seeing a divergence — manufacturing is finding its footing, albeit modestly, while services are facing ongoing drag.
What does this suggest when we zoom out? The dissonance between the two sectors hints at underlying imbalances in economic momentum. In isolation, manufacturing holding above water might feel reassuring. But the bulk of modern economies—especially in countries like New Zealand—lean heavily on services. So, a contraction in that part of the economy, now stretching multiple months, brings clear consequences.
For traders focused on short-term volatility, the contrast becomes more than just academic. Markets often respond with sharper movements when data surprises come amid broader uncertainty. With headline services data falling deeper into contraction territory, broader interpretations around interest rate expectations, forward-looking business confidence, and employment prospects all begin to shift. That’s where the opportunity, and the risk, start to expand.
Sector Divergence
Keller, the BusinessNZ executive, had previously suggested that recent optimism in the business sector might be premature. Looking at these numbers, we see support for that view – one that underlines why positioning based on recovery narratives might come under pressure in the near term. Confidence surveys had begun reflecting some mild positivity earlier in the quarter, but that sentiment hasn’t translated into PMI growth yet.
On the flip side, Bagrie, the economist, continues to underline that services, particularly across tourism, hospitality, and retail, are grappling with shifting demand and cost structures, which are slowing their recovery. Recent input from domestic surveys suggests that operating costs remain sticky, with real wage pressures still filtering through. This limits rebound speed and creates defensiveness across service-related equities and currency pairs tied to consumption.
From our side, we’re considering whether to scale back positioning that leans heavily into cyclical strength assumptions for now. Instead, attention may be better served in watching spreads between sectors and looking for pairs trades that capture this divergence. For instance, long exposure to industrial names hedged against domestic retail-focused listings could present a cleaner way to manage exposure. In FX terms, there’s the potential for NZD movement to reflect these splits, particularly against currencies where services are either stabilising or expanding.
It’s also worth noting the timing within the monetary cycle. Central bank commentary has recently grown more cautious, even as inflation prints inch down month-on-month. That cautiousness likely stems from this underperformance in services, which ties directly into domestic demand – a key metric central bankers monitor when finalising rate pathways. This slows the case for earlier rate cuts.
Expect this data to feature in upcoming bank commentary and broader market reactions, especially as traders start to prepare positions ahead of forward guidance releases. Short-term positioning now sits delicately between optimism tied to manufacturing signals and concern around a more lethargic consumer and service economy.
For our trading desk, the focus shifts from broader market direction to dissecting the mismatches. That’s where alpha may sit in the current environment.
