Key Points:

One of the most influential surveys of business opinion has today confirmed that a recession is uppermost in people's minds.

Business confidence plummeted in the March quarter while strong inflationary pressures remain persistent, the New Zealand Institute of Economic Research (NZIER) says.

In its latest Quarterly Survey of Business Opinion (QSBO) released today, NZIER said a net 56 per cent of firms on a seasonally adjusted basis expected the general business situation to deteriorate in the next six months.

That was the highest level since December 2005 and up from 38 per cent in December 2007.

Excluding seasonal adjustment, the balance of firms in the March survey expecting the general business situation to deteriorate in the next six months was 64 per cent, compared with 26 per cent in the December survey.

Meanwhile, indicators of inflation - capacity utilisation, difficulty finding labour, pricing and cost experiences and intentions - suggested strong inflationary pressures would persist.

A net balance of 45 per cent of firms intended to increase selling prices in the next three months, the highest level since March 1987, and up from 35 per cent in December, NZIER said.

Firms expecting an increase in costs had increased sharply from 49 per cent in December to 62 per cent in March, the highest since March 1987.

"The price and cost related data will increase the discomfort of the Reserve Bank about pricing intentions and inflationary expectations," NZIER said.

No firms intended to increase staff in the next three months, compared with 4 per cent that actually increased staff in the past three months, and 14 per cent of firms that had planned to increase staff in the previous survey.

Firms reporting greater difficulty finding labour was down for both skilled and unskilled, although the measure was still at a level that suggested relatively high difficulty by historical standards, NZIER said.

Among manufacturers, 12 per cent recorded a drop in employment in the past three months, while 12 per cent also reported a decrease in output. A net 73 per cent of manufacturers expected deterioration in the general business situation.

A net 9 per cent of construction firms reported a decrease in output in the March quarter, while a net balance of 9 per cent reported a decrease in new orders.

A net 12 per cent of building construction firms expected output to decline in the next three months, while 22 per cent expected a reduction in new orders and 34 per cent expected profitability to decline, NZIER said.

For services, the net balance of firms reporting an increase in volume in the March quarter was 3 per cent, down from 16 per cent in the December quarter.

Among merchants, 32 per cent of firms reported a decline in profits in March, compared to 20 per cent in the December survey. That statistic had been negative in every survey for the past 4-1/2 years.

- NZPA