(RTTNews) - New Zealand’s service sector contracted for the sixth consecutive month in September, a report by the Bank of New Zealand said Monday.

The performance of services index contracted to 46.9 in September from 47.9 in August, to its second lowest levels since the survey began. The index reflected a decline of 12.1 points from the reported value of 59 in September of 2007.

The report said that four of the five sub-indices displayed weakness in September.

A reading below 50 indicates expansion while a reading below 50 signifies contraction.

Activity levels remained below the no-change line, but the index improved slightly to 43.9 in September from 41.2 in the previous month.

Employment contracted for the seventh consecutive month, with the index slipping to 45.8 from 48.1 in August.

The Bank of New Zealand said firms of all employment size experienced contraction. Medium-large firms entered into a contraction phase after being in the expansion phase in the previous month. Small-medium and large firms continued to remain in contraction phase for the third consecutive month, while micro firms reverted back to activity levels in June.

New orders dropped below the boom-or-bust line for the first time in September, with the index slipping to 49.4 from 50.2 in the previous month. Suppliers deliveries also moved into contraction phase, with the index declining to 45.6 from 51.3.

Inventories continued in their expansion phase for the second consecutive month in September. However, the index eased slightly to 53 from 53.2 in the preceding month.

Among the sectors, retail trade sector continued in contraction phase for the sixth month running, while the accommodation, caf� and restaurants slid to its second worst performance. Transport and storage sector moved back to its levels in June. Health and community service was the only sector to remain in an expansion phase in September.

Meanwhile, the Bank of New Zealand believes that inflationary pressures were shrinking rapidly, and that by September next year, annual inflation would come back within the Reserve Bank’s target path, and move to a sub 2% low. On a quarterly basis, prices were expected to rise 0.2% in the fourth quarter.

The report said the forecasts for global growth rate were plummeting, suggesting further disinflationary pressure. Moreover, domestic demand was continuing to wane implying local inflation would decline, especially in the housing and related markets.

Consequently, the Reserve Bank will push interest rates aggressively downwards, with the report anticipating the cash rate to be between 1.25% and 1.75% lower in the next seven weeks.

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