KEY POINTS:
The economy is likely to continue contracting until the end of the year, the Institute of Economic Research believes, after its latest survey of business sentiment.
The quarterly survey of business opinion (QSBO) found a net 32 per cent of firms reporting a decline in their own activity,
down from a net 18 per cent in the June survey. Responses to that question are a good indicator of economic growth and it is now at levels last seen during the 1991 recession and lower than in the Asian crisis or the recession of the early 1980s.
It suggested gross domestic product declined again in the September quarter and was likely to decline further in the December quarter, making four successive quarters of contraction, the institute said.
Most firms - 68 per cent - cited a lack of demand as the major factor limiting expansion in their output, dwarfing supply-side factors such as finance or a shortage of workers.
A net 7 per cent of firms expect staff numbers to fall over the next three months following a net 11 per cent reporting a fall over the past three.
Investment intentions are little changed, remaining weak by historical standards.
And a net 23 per cent expect profitability to decline over the next three months. That is an improvement from the previous survey, but it had recorded the weakest profitability expectations for 26 years.
The flipside of a grim outlook for activity, however, is less inflation pressure.
There was a steep drop in firms expecting to raise their prices, to a net 28 per cent from 49 per cent in the previous survey.
Firms are finding it easier to get both skilled and unskilled labour than at any time in the past 10 years.
And capacity utilisation for physical plant has fallen to its lowest level in five years.
A net 52 per cent of firms expect their costs to rise over the next three months, but that is down from a net 71 per cent in June which was a 22-year high.
Business sentiment surveys often display a disconnect between what respondents are saying about their own affairs and their view of the general economic environment.
The September QSBO found a net 24 per cent of firms expect the general business situation to improve over the next six months, which is a rebound from the net 54 per cent pessimistic in June and 58 per cent in March.
The great majority of responses, however, occurred in the period between the Reserve Bank's 50-point cut in the official cash rate and financial market turbulence of the past two weeks.
"On these figures [the recession] looks more like 1998 than 1991, but if we took the survey now, who knows?" institute economist John Yeabsley said.
ANZ National bank economist Philip Borkin said the survey would certainly have allayed some of the Reserve Bank's worries about medium-term inflation.