8 Apr 2009

Recession may be deeper than expected - institute

6:39 am on 8 April 2009

Firms are increasingly gloomy about their fortunes, indicating the recession may be deeper than expected, according to a survey by the New Zealand Institute of Economic Research.

The quarterly survey of business opinion shows pessimists continue to outnumber optimists, with a net 47% reporting a fall in their own activity in the three months to March.

That is a rise from a net 44% reporting a fall in the previous quarter, and the worst showing in 39 years.

Institute senior economist Johannah Branson says a third of firms intend to lay off workers in the June quarter, the highest level since 1991, while investment plans have fallen to their lowest level since 1975.

Dr Branson says the March quarter is likely to be worse than the December quarter which recorded a 0.9% contraction.

"The fact that a net 38% of firms reported that they expect their own activity to fall over the next three months signals that ... the recession could be deeper than previously forecast."

Confidence about general economic conditions improved slightly, though it is too early to say whether that is sustainable, she says.

Dr Branson says inflation pressures have waned as a net number of firms intend cutting prices for the first time to bolster slumping sales.

She says the Reserve Bank should cut interest rates later this month to lift consumer spending and encourage firms to invest in their business.