The inflow of winter tourists has helped lift the Otago-Southland service industry off the June low.
The BNZ-Business New Zealand performance of service index showed Otago-Southland at 46 points in July, up from the 38.7 in June.
A reading below 50 indicates contraction and above 50 expansion.
Otago-Southland Employers Association chief executive John Scandrett said the index had lifted as predicted.
"Last month, we felt that we were seeing strong shoulder season negativity driven mainly by low activity levels across accommodation, food and beverage and tourism-based operations."
In July, the winter season tourist activity had appeared to have moved in a positive direction to help lift the index result.
"While this is somewhat heartening, we are still under the 50-point contraction threshold and we need to note there are negative comments coming to hand," Mr Scandrett said.
The negative comments came mainly from small firms.
Nationally, and within Otago-Southland, service-sector firms with 10 staff and fewer appeared to be performing at lower levels than companies with 50 or more staff.
Nationally, the index fell to 50.5 points in July, from 55.1 in June.
The July reading is back to July 2008 levels.
BNZ senior economist Craig Ebert said there was no denying the July result was another piece of unwelcome news for the country.
"But then the June quarter retailing was supposed to be soft, when it in fact expanded strongly in real terms and was nominally stronger in the June month.
"The point is that a lot of the recent data has been unusually noisy and therefore very difficult to trust."
There was a danger in being led by specific pieces of news now when the broader outlook remained "reasonably possible", he said.
That seemed as true for the international economy as much as it did for New Zealand, if the latest consensus forecasts were any guide, Mr Ebert said.
