By Tracy Withers
Jan. 13 (Bloomberg) -- New Zealand businesses grew more pessimistic about the economic outlook and their own earnings as the world’s largest economies slumped into recession, curbing exports and consumer spending.
A net 64 percent of companies surveyed last quarter expect the economy will worsen over the next six months, the New Zealand Institute of Economic Research said today in Wellington. That is more than three times the 19 percent that forecast a deterioration in the third quarter. The net figure is calculated by subtracting the pessimists from optimists.
New Zealand is in its first recession in 10 years as a global economic slowdown curbs business investment and consumer spending. The government, which last month said the economy may not start expanding steadily until 2010, plans to cut income taxes and spend more on roads and schools to spark demand.
“The economy had negative momentum throughout last year and in the first half it will feel the full brunt of the global slowdown,” said Khoon Goh, senior economist at ANZ National Bank Ltd. in Wellington. “Profit expectations have fallen very sharply. There are signs of real stress in corporate New Zealand.”
The New Zealand dollar fell to 57.33 U.S. cents at 11:45 a.m. in Wellington from 57.73 cents immediately before the report was released. The benchmark NZX 50 index dropped 1.3 percent to 2,733.54.
Profit Outlook
Highlighting the economy’s weakness, businesses reported a slump in activity in the fourth quarter, while the outlook for profits was the worst in 26 years, according to today’s survey.
Warehouse Group Ltd., the nation’s biggest discount retailer, said sales in the 10 weeks to Jan. 4 fell 2.5 percent and the company will probably show nil profit growth in the six months ending Jan. 25.
“The sheer scale and sharpness of the deterioration is difficult to ignore,” the institute said in today’s report. “Marked declines in employment and investment intentions in particular suggest that economic growth may be softer for longer than previously expected.”
The U.S. is entering a second year of recession while the U.K., Germany and Japan are also contracting, prompting central banks to cut borrowing costs and governments to spend heavily to stimulate their economies.
Interest Rates
Reserve Bank of New Zealand Governor Alan Bollard has reduced the benchmark interest rate by 3.25 percentage points since July and will cut by at least another half point on Jan. 29, according to all 14 economists surveyed by Bloomberg News.
The economy has been contracting since the first quarter of last year and probably shrank in the fourth quarter as well, the institute said.
The economy will contract in the first quarter as well, said Craig Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington.
New Zealand is facing an aggressive slowdown “in which people will be losing their jobs and firms won’t invest enough,” he said.
A net 44 percent of companies said trading fell in the three months ended Dec. 31, the most since records began in 1970. The net figure, which is seasonally adjusted, is calculated by subtracting those reporting an increase in activity from those seeing a drop.
Job Losses
A net 43 percent expect trading will slow in the first quarter, also the most pessimistic reading on record. A net 49 percent say profits will decline.
Companies are firing workers as consumers rein in spending and as the deepening global financial crisis threatens to damp demand for the nation’s exports.
The jobless rate rose to a five-year high of 4.2 percent in the third quarter and will increase to at least 6 percent this year, the government forecasts.
A net 32 percent of companies expect to fire workers in the next year, the most since 1991, today’s survey showed. A net 20 percent said it is easier to find skilled workers, the highest in 17 years.
A shrinking economy, falling fuel prices and lower interest rates are reducing costs and fewer companies expect to raise prices, which will ease inflation, the institute said.
Capacity utilization, a measure of factory usage, decreased to 88.8 percent in the fourth quarter, the lowest since mid-1999, from 90.8 percent in the previous three months.
For the first time since 1998, more firms expect to lower prices than raise them, the institute said.
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To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
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