KEY POINTS:
Businesses' views of their own prospects lurched lower last month and have been weaker only once in the 25 years of the National Bank's survey.
That was in April 1988.
"It's abundantly clear from the survey that the coming 12 months will be the most challenging this economy has faced in more than two decades," the bank's chief economist, Cameron Bagrie, said.
"This is not going to be recession lite."
On general business conditions, respondents' views were almost unchanged after October's plunge - the steepest ever. A net 43 per cent expect the economic environment to deteriorate.
"All hell was breaking loose over October. Now people have had a chance to sit back and look at the big picture, and they don't like what they see," Bagrie said.
Employment intentions are at a record low, extending a 10-month negative stretch. "The big surprise over the coming six to 12 months, I think, is going to be how quickly the unemployment rate moves up. Unfortunately, that means the economy is going to dig itself into a deeper hole, but as firms focus on productivity growth that sows the seeds for a stronger recovery."
Profit expectations have fallen to a record low, a net 39 per cent expecting earnings to shrink compared with a net 32 per cent last month.
Investment intentions were up slightly but are still the second weakest in the survey's history.
Despite falls in the New Zealand dollar, export expectations have softened, with a net 6 per cent expecting an increase, in volume terms, over the next 12 months, down from a net 11 per cent last month.
Bagrie is puzzled by a slight rise in firms' pricing intentions and inflation expectations. The level of pricing intentions remained consistent with a rapid drop in inflationary pressures and posed no barrier to lower interest rates, he said.
Bank of New Zealand economist Stephen Toplis said he would have expected the shift from a Labour to a National Government to have bolstered business confidence. "If it has, then the underlying reading would be that much worse," Toplis said.
"As it stands, we believe confidence levels are consistent with our view that the economy will report negative growth in the September and December quarters of 2008 and the March quarter next year, but that a modest recovery can then be expected."
The Reserve Bank reported yesterday that borrowing by the household sector slowed further last month, increasing just 0.2 per cent, seasonally adjusted, on September and 6 per cent on October last year. By both measures household borrowing is the weakest it has been since 1991.
The adjustment the economy is going through was always going to happen, said Bagrie. "Aggressive moves by the central bank and the Government, and falls in the currency, merely ensure the adjustment is not of the scorched-earth variety."
EXPECTATIONS
* On the economic outlook 61per cent of respondents expect worse times and 18per cent better ones. The net 43 per cent pessimistic is little changed on October's 42 per cent.
* On their own outlook a net 14per cent of firms are gloomy, the weakest this indicator has been since 1988.
* Employment intentions slipped further, to a record low.
