New Zealand's economy is likely to remain in recession until at least September as businesses start to report a decline in their trading activity.
A technical recession is two quarters - six months - of negative economic growth as measured by gross domestic product (GDP).
The NZIER quarterly survey of business opinion for the June quarter painted a picture of negative economic growth and strong, persistent inflationary pressures.
On Monday, Treasury also warned that New Zealand had probably experienced a technical recession in the first half of the year.
Bank of New Zealand research economist Stephen Toplis said the NZIER survey gave the Reserve Bank the green light to start cutting interest rates.
"Whether if feels comfortable doing so at the July 24 official cash rate review remains a moot point but September, and probably another before the end of the year, looks a done deal."
There was no doubt the health of the economy was worse than the Reserve Bank expected when it put together its June monetary policy statement, he said.
The really interesting information came in what the survey indicated for the third quarter.
The BNZ and the Reserve Bank were both picking a flat quarter but the survey indicated that a large negative number was conceivable, Mr Toplis said.
The own-activity indicator of the NZIER survey had proved "remarkably accurate" in the past and, given the negative momentum building up in both the household and business sector, a negative third quarter was plausible.
If the Reserve Bank took the survey at face value, then it could easily conclude that it needed to start easing sooner rather than later.
"Then again, it wasn't so long ago that Reserve Bank governor [Alan] Bollard rubbished the view that the economy might head into recession," Mr Toplis said.
NZIER chief executive Brent Layton said that on a seasonally adjusted basis, a net 18% of firms reported a decline in their own activity and a net 18% expected their trading activity to fall in the next three months.
Last quarter, the figures were 7% and 8%.
The latest figures were at their most negative since June 1998 and December 1982 respectively.
The movements in the trading activity indicators closely reflected the movements in real GDP over time.
The net balance of firms intending to increase selling prices in the next three months had increased.
The balance was 45% in March and 49% in June, the highest since March 1987.
The number of businesses expecting an increase in costs had increased to 71% in June from 62% in March with the latest figure the highest since December 1986.
Not unexpectedly, the NZIER survey showed 6% of firms surveyed intended to cut staff numbers during the next three months, compared to the 3% who did decrease staff in the past three months and a net 0% of firms that planned to decrease staff in the last survey.
Dr Layton said there had been a notable easing in the difficulty of finding skilled and unskilled labour.
A balance of 19% of firms reported in the June survey it had become harder to find skilled labour, the lowest number since June 1999.
In March, the figure was 36%.
The balance of firms reporting it had become harder to find unskilled labour went from 33% in December 2007 to 22% in March and 6% in June.
A Hays recruitment survey, also released yesterday, showed the number of New Zealanders concerned about their job security due to the economy outlook was only just outnumbered by those who remained unconcerned.
For months there had been commentary about the US sub-prime consequences.
There had been talk of organisations monitoring effects globally but with few local affects seen so far, Hays New Zealand managing director Jason Walker said.
"Closer to home, manufacturers are sending production offshore and petrol price and interest rate pressures have been widely debated.
"This can't help but make some people feel concerned about job security."
