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01-08-2008

NZ business gets even gloomier, says bank survey

NZHERALD

Business confidence has worsened in the National Bank Business Outlook July survey released this afternoon.

A net 43.2 per cent of those surveyed expect worse times over the year ahead, which is a deterioration from the net 38.7 per cent in last month's survey.

The trend in how firms feel about their own business was most disconcerting, the bank said.

A net 8.2 per cent expect conditions for their own business to worsen over the coming year, compared to 4 per cent in June.

"Not since 1988, and the start of the survey, have we seen five successive months where firms' own activity expectations have been negative," National Bank chief economist Cameron Bagrie said.

There was also an uptick in pricing intentions, with a net 43 per cent expecting to raise their prices, up from 41.2 in June.

One-year ahead inflation expectations have increased from 3.5 to 3.7 per cent.

In an analysis of the survey, ASB economists said the own activity indicator was at its lowest point since April 1991.

"It remains a perilous time for the Reserve Bank, balancing an economy mostly likely in recession and inflation heading toward 5 per cent.

"We expect the Reserve Bank will continue its easing cycle in a cautious manner, opting for consecutive 25 basis point cuts in the official cash rate, finishing at 6.75 per cent."

The Reserve Bank cut the official cash rate for the first time in five years by 25 basis points to 8 per cent last week.

The business outlook survey revealed that while the rural heartland and confidence towards agriculture remained positive, it was a sea of red ink across retailing, manufacturing, construction and services.

A net 14 per cent expect to hire fewer employees over the year ahead. This was down 2 percentage points from last month.

Investment intentions slipped another percentage point, with a net 4 per cent expecting less investment over the next 12 months.

A bright spot was an improvement in export intentions care of the lower New Zealand dollar.

"Our composite growth indicator from the survey is not only negative, it is telling us the economy is firmly in contraction mode," the survey's authors said.

There is also a north-south divide in the survey, with conditions weaker in the upper North Island and relatively firmer in the deep south.

The service sector, which can smooth out swings in the economy, is weak.

- NZPA

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