It was a similar story in New Zealand where business confidence fell with companies saying a housing market slump and slowing consumer spending may cause the economy to contract.
But unlike our five year lows, the NZ poll results showed even greater pessimism on some questions, according to the survey from the New Zealand Institute of Economic Research yesterday.
A majority of NZ companies say the economy will deteriorate in the next six months compared to a minority in the previous survey. The Institute said the plunge in confidence was in all sectors of NZ business where it has separate data.
The Institute said that its survey for the March quarter painted "a general picture of plummeting general business confidence and strong, persistent inflationary pressures".
"General business confidence deteriorated sharply in the March 2008 quarter survey results.
"On a seasonally adjusted basis, a net 56% of firms expect the general business situation to deteriorate in the next six months.
"This is the highest level for this figure since December 2005 and is up from 38% in December 2007.
"Indicators of inflation (capacity utilisation, difficulty finding labour, pricing and cost experiences and intentions) suggest that strong inflationary pressures will persist, which will increase the Reserve Bank’s discomfort in relation to pricing intentions and inflationary expectations."
The Institute said the survey was conducted within three weeks of the Reserve Bank’s March 6 announcement that the Official Cash Rate (OCR) would remain unchanged at 8.25%.
"Many of the responses were sent before the 28 March announcement of a 1.0% real increase in Gross Domestic Product (GDP) over the December 2007 quarter. Speculation in the media and from market commentators regarding the prospects of the country experiencing a recession took place during the period over which the survey was conducted.
"On a seasonally adjusted basis, a net 56% of firms expect the general business situation to deteriorate in the next six months. This compares with a net balance of 38% that expected deterioration in the December survey and a net 30% in the September survey.
"If the seasonal adjustment is excluded, the balance of firms in the March survey expecting the general business situation to deteriorate in the next six months is 64%. This compares with a net 26% of firms that expected the general business situation to deteriorate in the December survey.
"The seasonally unadjusted business confidence statistic plunged in all business sectors for which we analyse separate data."
972 companies were surveyed last month and a net 10% expect domestic trading and sales will decline over the next three months compared with 14% predicting an increase in the previous poll. A net 33% said profits will fall in the next three months, the most since March 1983.
A net 45% of companies surveyed said they are likely to raise prices in the next three months from 35%, while on a net basis, no firms said they plan to hire workers.
The Institute believes the indicators of capacity, labor shortages and pricing intentions suggest inflationary pressures will persist.
But capacity utilization rose to a record-equaling 92.6% from 92% in the fourth quarter, pointing to an economy operating on the edge, with strong demand and scarce resources (A bit like Australia).
The NZ March quarter Consumer price Index will be published next Tuesday, ahead of the Reserve Bank’s next interest rate review on April 24, the day after our CPI is released. Our Reserve Bank meets 10 days later.
Around 40% of companies surveyed said it was harder to find skilled workers than three months earlier compared with 46% in the fourth quarter, another sign of the capacity constraints that are similar to what we are seeing in Australia.
New Zealand however doesn’t have a booming mining and resources sector but, notwithstanding a recent drought, it does have a booming dairy sector which is generating record incomes for farmers and the near monopoly, Fonterra.
