KEY POINTS:
Business confidence remains depressed, according to the New Zealand Institute of Economic Research's latest quarter survey of business opinion.
The well-regarded survey published today showed a net 26 per cent of firms expect the general business situation to deteriorate in the next six months.
That is little changed from the 27 per cent figure in the September quarter survey.
On a seasonally adjusted basis, the picture is grimmer, with a net 38 per cent expecting a deterioration against 30 per cent in the September quarter.
"Pessimism about the outlook for the general business situation in the next six months is more widespread among firms," institute chief executive Brent Layton said.
He said indications of inflation - capacity utilisation, finding workers, pricing and cost experiences and intentions - suggested strong inflation pressures remain.
The Reserve Bank would have no grounds to feel comfortable about pricing intentions and inflationary expectations, Dr Layton said.
He said that rather than cut rates, there was a 30-40 per cent chance the Reserve Bank would hike interest rates again this year.
Today's survey had not reduced that probability, he said.
Rates were likely to stay up for longer rather than be cut sooner, he said.
The survey comes amid market pessimism about the international economy due to the international credit crisis that threatens to push the United States economy into recession.
The local sharemarket has lost 5 per cent in two weeks, and yesterday hit a 14-month low.
Consumer Price data out tomorrow is expected to push the annual inflation rate right to the top, or above, the bank's 1 to 3 per cent target band.
So unlike the US Federal Reserve, which has cut interest rates twice to alleviate the international credit crisis, the Reserve Bank is not expected to reduce interest rates at least until the end of this year.
The institute said survey results "do not suggest there has been any significant reduction in inflationary pressures which the bank will be looking for before it starts to lower the OCR (official cash rate)".
On a more positive note, a net 6 per cent of firms on a seasonally adjusted basis reported an increase in their own activity, against 2 per cent last quarter.
A net 12 per cent expected their own trading activity to increase in the next quarter, down from 13 per cent in the previous quarter.
Manufacturers were generally more positive about the outlook, but still a net 35 per cent expect the general situation to deteriorate, against a net 22 per cent in Australia who expect an improvement.
Local manufacturers have been gloomier than their Australian counterparts for the last six years but this is the largest differential since 1990.
The outlook for the construction industry also slightly improved with a net 40 per cent expecting output to rise.
Merchants were also reasonably positive with a net 7 per cent expecting an increase in new orders and a net 11 per cent expecting an increase in local sales.
There is little likelihood of an easing in the tight labour market. A net 14 per cent of firms intend to increase staff against 4 per cent that actually increased staff in the last quarter.
The net balance of firms reporting greater difficulty finding labour is up for both skilled and unskilled.
On the pricing front, the net balance of firms intending to increasing prices in the next three months remained virtually unchanged at 34 per cent.
Those expecting a rise in costs rose to a net 49 per cent, from 44 per cent in September.
A net balance of firms reporting a decline in profitability was unchanged at 19 per cent.
- NZPA
