Otago-Southland Employers Association chief executive John Scandrett said in response to the latest figures that the region was down but not out.
He was confident fortunes for Otago and Southland would bounce back by the end of the year. But in the meantime, it would be tough going for some in the service sector.
The BNZ-Business New Zealand Performance in Services index showed Otago-Southland languishing at the bottom of the the country with only 39.3 points in May, down from 46.3 in April and 48.3 in May last year.
In contrast, the region's nearest neighbour - Canterbury-Westland - was at 50.2 points, where a reading above 50 indicates expansion and below 50 that the industry is contracting.
Mr Scandrett queried the latest results with Business NZ, of which the association is a member. He found that the results were accurate but he was concerned the survey sample was too narrow.
"When we review the reality of what is occurring here in the services sector, it is still abundantly clear that we cannot currently shake off the impact of the earthquake-driven negativity. Visitor numbers have shrunk markedly across most of our region and local consumers are watching their pennies.
"We have to accept that the region is continuing to struggle across virtually any and all services connected to tourism, accommodation, catering and retailing."
Mr Scandrett found it extraordinary that in Canterbury-Westland, the May index remained "firmly" on 50.2 points.
"We can legitimately query why they, at the earthquake front door, are performing better than our own service providers."
The answer was that the remaining and relocated surviving businesses in Christchurch were operating in a reduced market situation, where there was now heavy demand for accommodation and catering.
Some restaurants had adopted double shifts to meet demand.
"As a recent Wellington visitor to Christchurch recounted to me today, securing a booking at an ordinary suburban restaurant would take weeks, or more likely, months."
In Otago-Southland, the services industry had the capacity to meet full demand but the market demand was not there. Further north, there was market demand but supply was a problem.
Last week, the Performance in Manufacturing index showed the region at 45.3 points, with trade unions warning that worse was to come as KiwiRail made Hillside workers redundant and with the continuing decline in the region's wood industry.
Asked if the region was in a state of perilous decline, Mr Scandrett said the farm gate returns were "spectacularly positive". Although those returns had not drifted down into other parts of the region, he was confident they would.
Some niche exporters were doing well, despite the strength of the New Zealand dollar.
But the high dollar was not supportive of tourists coming to the country and it was starting to appear New Zealand had become two countries.
The activity levels in Auckland were a real eye opener, he said.
Once the rebuilding of Christchurch got under way, there would be an injection of new capital but that would not happen until all the paper work was completed.
There was much planning and design to do and insurance claims to complete, and that could take many months.
There was now a concern about how long some in the service industry could hold on to staff if the current decline continued, Mr Scandrett said.
Nationally, the service sector recorded its fourth consecutive month of improved expansion in May, the index showed.
The seasonally adjusted index edged up 0.2 points from April to be at 52.8 last month, the best result since last September.
