Although improvements were seen because of economic activity created by returning tertiary students, the Otago-Southland services sector continued to decline.
The BNZ Capital and Business New Zealand Performance of Services Index (PSI) for Otago and Southland in February was 48, compared to 40.4 in January.
Nationally, the PSI was 46.3, up 3.6 points on January.
A reading lower than 50 indicates the sector is declining, and higher that it is expanding.
This follows news last week that Otago-Southland manufacturing recorded its worst result in 26 years, with a BNZ Capital and Business New Zealand Performance Manufacturing Index of 44.5, down from 48.4 in January.
But as with the PSI, the South's PMI was above the national average of 38.
Otago-Southland Employers Association chief executive Duncan Simpson was cautious about reading too much into the February figures.
"The return of the students has certainly boosted activity in a number of areas, although it remains to be seen whether the recovery persists into March and beyond," he said.
"The retail and hospitality sub-sector in particular are struggling, and tourism is reporting mixed results," he said.
Otago-Southland ranked second nationally, behind Canterbury-Westland which was on 48.9, while Northern was on 45.3 and Central was on 46.9.
BNZ Capital senior economist Craig Ebert agreed with Mr Simpson, saying the contraction was most pronounced in retail and hospitality, areas dependent on discretionary spending and sensitive to the health of tourism.
"This suggests that the service-based retail sector will remain under pressure for the near term," Mr Ebert said.
All five indices that make up the PSI contracted in February.
Activity-sales was 42.9, employment 44.9, new orders-business 49.8, stocks inventories 48.3 and deliveries 47.2.
It was the 12th consecutive month that the employment measure had contracted.
