KEY POINTS:
Businesses are gloomier about the economic outlook - but more optimistic about their own prospects - than they were a month ago.
The National Bank's business outlook survey finds a net 25 per cent of firms expect business conditions to deteriorate over the coming year, down from a net 20 per cent last month.
It is the inward-facing sectors of the economy - retail, construction and services - where confidence ebbed. Sentiment in agriculture and manufacturing improved slightly.
A net 18 per cent of firms expect their own activity to lift over the year ahead, up from 16 per cent in November but below the long-run average for all sectors.
The survey is full of conflicting signals. Expectations for profits and exports soften, but hiring intentions are up.
Investment intentions are down, to a six-month low, but both commercial and residential construction are expected to improve.
But the movements were modest, and overall the survey continued to point to relatively robust economic growth of around 2.25 per cent over the coming year, said the bank's chief economist, Cameron Bagrie.
The fall in overall confidence was easier to understand in the light of the economic news of the past month than the relative stability over most of the survey, he said.
The kiwi was propelled higher not only against the US dollar, but against the Australian currency.
The housing market continued to weaken, retailing was soft and both incomes and profits were squeezed by rising costs, he said.
"And around the world widespread concerns about a full-blown credit crunch have resurfaced."
Some offsetting buoyancy has been provided, however, by expectations that Fonterra would raise its forecast payout further - although the announcement came after the survey closed off - and by expectations that tax cuts are in the offing.
Bagrie said the economy was delicately poised, with pockets of strength and of weakness and the kind of mixed indicators which often preceded a major turning point.
In the rural sector dairy farmers are doing well but sheep and beef farmers are having a hard time.
Wage growth is strong, but a lot of middle- and low-income families are struggling because of higher costs.
"Among businesses it is patchy and spasmodic. They get a good week, then a poor week," he said.
"Things look okay for now but everyone is looking over their shoulder and thinking 'what if ?'."
With a higher currency, tighter monetary policy, wider credit spreads and easing wealth gains from assets, financial conditions were the toughest they had been since 1996/97, just before the Asian crisis, he said.
While export intentions had retreated in the face of the high New Zealand dollar, a net 18 per cent of exporters still expected to ship increased volumes over the coming year, a figure Bagrie described as remarkably robust in the circumstances.
The belief that the world economy would be able to shrug off a US downturn was fading as growth softened in both Europe and Japan, Bagrie said.
Not quite cheery
* No seasonal cheer about the economy overall.
* But businesses are slightly more upbeat than they were in November about their own outlook.
* Their investment plans have been dialled back, but hiring intentions have strengthened.
* And more intend to raise their prices.
