KEY POINTS:
The credit crisis and its attendant uncertainty has triggered a haemorrhagic loss of business confidence in the National Bank's monthly survey.
A net 42 per cent of respondents expect the general business environment to worsen over the year ahead. Last month a net 2 per cent expected better times. It is the steepest monthly decline in the 20-year history of the survey.
Every sector is negative, retailers and services most of all.
"It's a sign of the times," the bank's chief economist Cameron Bagrie said.
"When people see these big movements in global equities markets they may not be sure what to make of it but they know it's not good."
It is not just firms reflecting the news they read or see, however. Their view of their own outlook has plunged from plus 17 per cent to minus 11.
Employment intentions have been declining for nine straight months and are now at a 20-year low.
"With profits under pressure, people are looking at costs," Bagrie said.
From the standpoint of the economy this was the necessary next step in the cycle - raising productivity. But it would increase the pressure on households.
The unemployment rate could climb to 6 or 6.5 per cent, Bagrie said, from 3.9 per cent now. Every 1 percentage point rise in the unemployment rate represents about 23,000 people.
Investment intentions, profit expectations and export intentions tumbled.
A net 20 per cent of firms expect to raise their prices, down sharply from 35 per cent last month.
"That will be very encouraging to the Reserve Bank and give it more latitude to lower interest rates," Bagrie said.
The economy's shock absorbers were working, Bagrie said. The official cash rate has been cut 175 basis points, with the prospect of more to come, and the dollar has fallen sharply.
But such adjustments could only do so much.
"What is unusual about this recession - across the Anglo economies at least - is that it's households' balance sheets, not companies', which are most extended and need to be rebuilt," Bagrie said.
This would make for a longer process of recovery than in recessions triggered by excesses in the corporate sector.
"While companies have lots of things they can adjust, households have one - their discretionary spending," Bagrie said.
Credit data from the Reserve Bank yesterday provided fresh evidence of households pulling in their horns.
Household borrowing grew just 0.2 per cent last month, seasonally adjusted - the weakest growth since 1990 - to be just 6.6 per cent higher than a year earlier.
Annual growth in borrowing by businesses, by contrast, is holding up at double-digit rates in line with the past five months and lending to farmers is still growing apace.
"In such situations and facing such uncertainty, it pays to keep a sense of perspective," Bagrie said.
"The pastoral season has started okay although a drought hangover lingers. Pricing intentions have fallen to the lowest level since 2005. The Reserve Bank is moving aggressively to lower interest rates. The New Zealand dollar is adjusting down to appropriately reflect the new world order and falling commodity prices."
Down but not out
* Headline business confidence posts its steepest monthly drop in 20 years.
* Firms are just as gloomy about their own outlook - with expectations for profits, exports, hiring and investment all sharply lower.
* The flipside is far fewer firms expect to be able to raise their prices - a green light for further interest rate cuts.
