Long recession more likely as business opinion slumps in December

New Zealand business confidence in the December quarter fell to levels not seen since the start of 1970, the latest NZIER Quarterly Survey of Business Opinion shows. A seasonally adjusted net 44% of respondents to the survey reported a drop in their own business activity over the December quarter, compared to a net 32% in the September quarter. The survey will further raise expectations that New Zealand's economy will remain in recession over 2009. It will also put further pressure on the Reserve Bank to cut the Official Cash Rate to below 4% by mid-2009. The next OCR announcement is on January 29. "Given the economic disruption increasingly evident in the US and the extent of weakness in the QSBO survey, there is growing risk that NZ remains in recession for much of 2009," ASB Chief Economist and ASB Economist Jane Turner said. "We continue to believe that a 100bp OCR cut is appropriate on January 29: certainly there is little room for regret for the RBNZ in doing so," they said.

A net 43% of respondents said they expect their own business activity to drop in the March quarter (compared to net 13% in the September survey for December), with net 64% expecting conditions to get worse for the whole economy. "Marked declines in employment and investment intentions in particular suggest that economic growth may be softer for longer than previously expected," the survey said. New Zealand's housing industry received more bad news. Net 23% of building construction firms reported a decrease in output over the December quarter, while net 65% of building material suppliers reported a decrease in output. "Architects' views about work availability over the next 12 months provide a very good lead indicator for building construction, and in this part the survey was incredibly weak. Net 59% expect to see housing-related work decline (compared to net 31% in Q3), while net 64% expect commercial and flats-related work to decrease (compared to just 20% in the previous quarter)," the ASB economists said. Building consent data for November 2008 is due out Wednesday, January 14. New Zealand's unemployment rate has started to rise and is set to rise even quicker, with a net 32% of respondents saying they intend to cut staff in the next quarter. This was the highest the figure had reached since June 1991. Unemployment is expected to rise above 6% in 2009 by some bank economists. In it's December monetary policy statement, the RBNZ forecast unemployment to peak at 6% in the December quarter of 2009. The rise in the unemployment rate did have one possible positive turn, with a net 20% of firms reporting it had become easier to find skilled labour and a net 43% reporting it had become easier to find unskilled labour. These figures are both their highest in 17 years. A net 90% of financial services firms expect interest rates to be lower over the next twelve months than in the past year. This figure is the highest since September 1991. A net 3% of firms reported they intend to reduce selling prices in the next three months. The last occasion a net balance of firms intended to reduce selling prices was December 1998. Regionally, the dive in business confidence was relatively even throughout New Zealand, with a net 65% of firms operating only in the South Island reporting they expected conditions to get worse compared to a net 60% in the Lower North Island and net 62% in the Upper North Island. A net 74% of firms that operated nationwide expected conditions to deteriorate in the next quarter.