KEY POINTS:
The outlook of most New Zealand companies remains grim as the country braces for a year of high inflation and interest rates and reduced consumer spending.
The New Zealand Institute of Economic Research's latest quarter survey of business opinion showed a net 26 per cent of companies expect the economy to deteriorate in the next six months. That compares with a net 27 per cent in the previous survey.
The net figure is calculated by subtracting the pessimists from the optimists. The survey, released yesterday, showed just 9 per cent of companies expect the economy will improve in the next six months.
A net 35 per cent of companies surveyed also said they are likely to raise prices in the next three months from 34 per cent in the September survey.
On a seasonally adjusted basis, the outlook looks worse, with a net 38 per cent expecting a deterioration against 30 per cent in the September quarter.
The Reserve Bank would have no grounds to feel comfortable about pricing intentions and inflationary expectations, institute chief executive Brent 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.
The 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)", the institute said.
Despite the negative sentiment, a net 6 per cent of firms on a seasonally adjusted basis reported an increase in 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 also more positive, but a net 35 per cent still expect the general situation to deteriorate, against a net 22 per cent in Australia who expect an improvement.
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 orders and a net 11 per cent expecting a boost 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.
About 46 per cent of companies said it was harder to find skilled workers than three months earlier, compared with 44 per cent in the third quarter. Two per cent said it was easier.
Economists closely watch the business survey, monitoring the rate of capacity utilisation, which measures how much plant, equipment and labour is employed, and the difficulty in finding workers, to gauge inflation pressures in the economy.
The survey suggested that "resources in the economy remain stretched to the hilt," wrote ASB economist Nick Tuffley.
UPS AND DOWNS
* Headline business confidence was largely unchanged in the December quarter, but deteriorated in seasonally adjusted terms.
* Firms continue to be relatively optimistic about their own trading activity.
* Despite signs the economy is slowing, it was still running close to capacity over the December quarter, a worrying trend for the Reserve Bank.
