New Zealand has turned into an overwhelming nation of pessimists, according to the latest ANZ-National Bank business outlook.
"Pre-Christmas euphoria remains a distant memory - much like robust economic optimism," ANZ-National Bank chief economist Cameron Bagrie said.
"We are still an overwhelming nation of pessimists, with a net 50% expecting business conditions to deteriorate over the coming months.
While it is encouraging to see small increases in confidence off precipitous lows seen in March, the move appears to lack conviction." It was worrying to see confidence remain so sluggish, he said.
Since the last survey in April, the dollar had been lower, a late-April deluge of rain broke the drought in Waikato, global sentiment had stabilised and the spectre of tax cuts had emerged. However, headwinds facing the economy remained significant.
Businesses were feeling the pinch as oil and petrol prices continued to siphon money away from discretionary spending.
Weakness in the housing market showed no sign of abating and was broadening into commercial construction, with pessimism in that sector hitting an all-time low, Mr Bagrie said. Firms' own-activity expectations remained negative .
With firms lacking real conviction with regard to their own business, the economy appeared to be slipping backwards.
The slowdown in growth was becoming more apparent in employment, with a net 9% expecting fewer staff over the coming year.
The March quarter's rise in the unemployment rate looked to be the beginning of a new trend, he said.
"The economy is in transition. Relative price signals, including high mortgage and deposit rates, are encouraging less spending and more squirrel-type behaviour.
"It's all a part of the inevitable rebalancing as growth rotates from the spending to the earnings side of the economy."
A lower currency was an inevitable part and precursor to such rebalancing taking on a sustained look, Mr Bagrie said. A lifeline in the form of lower interest rates would not go astray.
More respondents were expecting lower interest rates and financial markets had moved to price in those reductions. Soaring oil prices and continued capacity pressure remained hurdles to householders getting interest-rate relief.
Inflation expectations had risen again and pricing intentions had surged to a 22-month high. A net 36% of respondents expected to increase prices in the year ahead, he said.
The New Zealand Institute of Economic Research June quarterly projections forecast economic growth to be 1.9% in the March 2009 year, down from 2.9% in the year to March 2008.
The 1.9% growth was well below the five-year average of 3.4%, NZIER director Brent Layton said.
The sharp contraction in growth in the March 2009 year would be led by a fall in the growth rate of private consumption, which was forecast to be 0% in the period after growing by 3.7% in the March 2008 year.
Private consumption expenditure made up about 60% of gross domestic product (GDP) by value.
"This component of GDP remaining static in the March 2009 year will contribute significantly to the low overall level of economic activity," he said.
There had been increasing pressure on the Reserve Bank to start easing monetary policy with a clear slowdown in economic activity under way, he said.
There were several indicators and potential developments suggesting that the risks to inflation could not be lightly dismissed, especially given that in the year to March 2008 inflation was 3.4% - well outside the central bank's target band.
The weakening of the dollar in recent weeks, especially against the Australian dollar, was likely to put upward pressure on prices of tradeable goods and services.
Any easing in monetary policy would lead to the dollar weakening further and exacerbating the inflation stimulus, he said.
"In view of the Reserve Bank needing to balance these countervailing pressures, it is most likely to be the final quarter of 2008 before it will cut the official cash rate [OCR]. We think the likelihood of any further increases before the next downward move has become very small."
