The New Zealand economy, still wearing the bruises from the domestically driven recession of 2008, has had to contend with a deeper, globally driven downturn in the first half of 2009. And a key activity indicator last week provided little hope of a significant turnaround this year.
The March Quarterly Survey of Business Opinion was, on balance, even weaker than the horrendous details of the December 2008 survey. Firms’ expectations of domestic trading activity picked up slightly, with a net 39% expecting conditions to get worse over the next three months, compared to a net 41% in December. But these were easily the two worst reads on record for this survey (since at least 1970).
The domestic trading activity measure is a useful indicator for contemporaneous GDP, and the latest read suggests some downside risk to our forecast of a 1% contraction in Q1 GDP. Indeed, eyeballing the relationship between the two would suggest a quarterly fall of more like 3%. However, we caution that the survey doesn’t capture agriculture or government activity, which have been two relatively bright spots in the economy lately.
The details of the survey were even weaker than in December. Investment and employment intentions fell to new record lows, indicating that firms are still deep within the retrenchment phase. Profit expectations remained extremely weak, with a net 45% of firms expecting profits to fall in the next quarter.
