(Bloomberg) -- New Zealand’s services sector, which makes up two-thirds of the economy, recorded its weakest level of activity in almost three years as consumers rein in spending.

The Performance of Services Index dropped to 43 in May, Bank of New Zealand said Monday in Wellington. That’s the lowest since August 2021 when largest city Auckland was in lockdown, and the weakest since the survey began in 2007 if months affected by pandemic lockdowns are excluded. A reading below 50 signals the sector is contracting.

High interest rates have curbed household spending and stalled activity in construction, real estate, retailing and hospitality. The weakness in the services gauge reinforces signs that the economy is struggling to emerge from a recession that started last year.

“Demand has slumped,” said Doug Steel, senior economist at BNZ in Wellington. The PSI “tells of a services sector in reverse, at pace,” he said.

Coupled with data showing the manufacturing sector was in contraction for a 15th straight month in May, today’s report suggests downside risk to second-quarter GDP, Steel said.

BNZ forecasts the economy shrank 0.1% in the first quarter — a third straight contraction — and provisionally projects nil growth in the three months through June.

The first-quarter GDP report is due June 20.

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