Business activity worsens to 39-year low; kiwi tumbles

By Paul McBeth

Tuesday 7th April 2009

New Zealand business activity sank in the first quarter, with the number companies reporting a fall in trading reaching the worst level since at least 1970. The kiwi dollar dropped below 58 US cents for the first time in five days after the report was released.

A net 47% of firms recorded a fall in their activity in the March quarter, according to the New Zealand Institute of Economic Research. Pessimism continued with a net 65% of respondents expecting economic conditions to deteriorate over the next six months, versus a net 64% in the previous quarter. The New Zealand dollar sank as low as 57.93 US cents following the release of the Quarterly Survey of Business Opinion and was recently at 58.20 US cents.

The report's findings "suggests that the GDP figure for the first quarter of 2009 will be as bad as, if not worse than, the 0.9% contraction seen in the last quarter of 2008," the institute said in the report. "A sliver of silver lining is that confidence has at least halted its downward track."

As the downturn forces firms to cut prices, inflationary pressures have eased in the short-term, and the Reserve Bank has scope to cut the official cash rate from a record-low 3%, the report said.

"This data certainly supports last week's message from the RBNZ that rates will remain at relatively low levels for an extended period," said Darren Gibbs, chief economist at Deutsche Bank.

The NZX 50 Index sank 0.9% to 2610.10, with Guinness Peat Group sliding 5.7% to 66 N.Z. cents.

The report recorded a net 36% of firms intend to cut staff numbers over the next three months, while 34% had already done so in the last three months, the highest since figures since late 1991. The jobless rate rose to 4.6% in the fourth quarter, and is expected to exceed 7% by the first quarter of next year, according to government forecasts.

The QSBO showed capacity utilisation, the level of use of resources available in the economy, fell to 86.3%, its lowest since June 1992.

"The risks for the moment remain weighted to the downside," said Robin Clements, senior economist at UBS New Zealand. "The recession could still be deeper and extend further into 2009 than currently predicted."

Comments from our readers

No comments yet