KEY POINTS:
Business confidence has taken another lurch lower in the National Bank's March survey.
Thirty per cent of firms expect their own activity to fall over the coming year and only 24 per cent expect it to increase.
The net 6 per cent pessimism is the worst since the
recession year of 1991, although it touched minus 4 per cent early in 2006. In this indicator, optimists almost always outnumber pessimists, and by a healthy margin. It has only been in negative territory 12 times in the survey's 20-year history, for less than 6 per cent of the time.
Confidence about the general business situation has also tumbled. A net 58 per cent are pessimistic, up from a net 44 per cent in February, and the highest since late 2005.
While general confidence can be blown around by news reports and anecdotal chatter, firms' views of their own outlook provide a more reliable indicator.
When combined with weaker hiring and investment intentions and lower profit expectations, it points to growth having stalled, the bank's chief economist, Cameron Bagrie, said.
And export intentions have fallen to levels last seen during the Asian crisis of 1998.
The credit crunch was quite significant, given our reliance on overseas funding, he said, and the housing market slowdown had now spread into the broader economy.
Although we go into the slowdown with unemployment at historic lows, hiring intentions have been negative for two months in a row, which portended a significant softening in the demand for labour, Bagrie said.
"The scary thought is that the housing market is already weak - house prices are already down 4 per cent [from their peak] - yet the labour market hasn't budged," he said.
"Inflation is not going to go down until the labour market turns. In the end [central bank governor] Alan Bollard is going to win, so we know the labour market is going to loosen up."
Bagrie said he was not talking about a large rise in unemployment.
"But look at the United States. Its unemployment rate has only risen from 4.3 to 5 per cent yet it has had massive flow-on effects. So I don't think it is going to take much of a change in unemployment for the whole economic landscape here to change."
The downturn was being led by the construction sector, the most pessimistic about activity, employment, profits and investment.
"Residential investment intentions, with a net 46 per cent expecting a deterioration, have fallen to an historic low." Commercial construction fared a little better but still has a net 30 per cent expecting worse times ahead.
Dwelling consents data released by Statistics new Zealand yesterday recording a 6.5 per cent drop in February, which more than reversed January's rebound. Excluding apartments, the drop was a more modest 3 per cent.
ASB Bank pointed to historic relationships between turnover in the housing market and dwelling consents, which suggest the latter have further to fall.
While the National Bank survey's activity indicators are all pointing down, its inflation indicators are all pointing up. A net 32 per cent of firms intend to raise their prices, up from 28 per cent in February, which inflation expectations have edged up from 3.26 to 3.29 per cent.
"Inflation pressure - which pricing intentions suggest remains disconcerting - will eventually recede in a weak growth environment," Bagrie said. That would be part of the positive flipside of the adjustment ahead, along with a weaker exchange rate and more affordable house prices.
