KEY POINTS:
Business confidence remains in the pits in the National Bank's latest monthly survey.
Positive developments since the April survey have failed to lift businesses' spirits, like the easing of the exchange rate - especially against the Australian dollar - the breaking of the drought in Waikato, tentative signs global credit markets are stabilising, the prospect of tax cuts and the free trade agreement with China.
Pessimists about the general economic situation outnumber optimists nearly five to one, with a net 49.7 per cent expecting conditions to worsen. While that is a slight improvement on April's net 54.8 per cent gloomy, firms' views of their own prospects have deteriorated marginally, with a net 4.4 per cent expecting their activity to decline compared with a net 3.8 per cent last month.
It is the third month in a row that indicator has been in negative territory, the first time that has happened since the recession of 1991.
The bank's chief economist, Cameron Bagrie, said the slowdown was spreading from the housing and retailing sectors to the broader economy. Sentiment in the commercial construction sector had hit an all-time low.
Firms on balance expect to cut back on investment, and their hiring intentions have deteriorated to the weakest level in eight years.
Overall, the survey was consistent with an economy where activity was flat at best, Bagrie said.
While higher oil prices continued to siphon money away from discretionary spending they were also driving inflation expectations and firms' pricing intentions higher, he said.
"But the inflation dynamic is not just an oil price phenomenon. It is also rife in food prices, government charges and rates, which unfortunately means we need a bigger adjustment in the demand-linked parts [of the consumers price index]."
The Reserve Bank's own survey of expectations, also released yesterday, recorded a further deterioration in expectations for inflation both one and two years ahead. The latter, at 2.9 per cent, is as high as it has been since 1991.
A net 36 per cent of respondents to the National Bank survey expect to raise their prices. That is a jump from 31 per cent in April and includes 55 per cent of retailers.
