The economy looks like enduring further pain in the coming months even though two business confidence surveys released yesterday show levels of pessimism are starting to wane.
The NZIER quarterly survey of business opinion revealed businesses were less pessimistic than they had been in the last six months, but the economists still expect the economy to contract in the June and September quarters and unemployment to hit 7.8% next year.
NZIER chief executive Jean-Pierre de Raad said the survey showed domestic trade was leading economic growth.
The BNZ confidence survey found that 15% of respondents expected the economy to improve in the coming year, down slightly on the 18% in June and 27% in May who felt that way in earlier surveys.
BNZ chief economist Tony Alexander said he interpreted those results as being a "sigh of relief" that the economy had avoided a deep recession.
"In many sectors conditions remain very tough, but there is some evidence of mild improvement in recent weeks."
Mr de Raad said the NZIER survey showed businesses did not think the recession was over.
"Fewer businesses expect a reduction in their own trading activity in the next three months. But the recession is not over yet. These latest data do not alter our view of a continued contraction until the December quarter."
He said 36% of firms reported a decrease in output or sales, while 10% expected a decline in activity in the next three months.
"This is a significant improvement in the net 36% who expected a decline last quarter."
He said most indicators remained "firmly negative" but overall were slightly more positive than the last quarter.
Households were yet to feel the full effects of the recession and he predicted unemployment to hit 7.8% next year.
"Employment and investment intentions are still negative. A net 31% of firms reduced staff numbers in the last three months and a net 19% of firms intend to cut staff numbers over the next three months."
Investment intentions had improved, albeit off the lowest recorded levels since the survey began in 1975.
But companies were running lean operations, with capacity utilisation increasing from 86% in the last quarter, to 91%, the largest quarterly increase in capacity utilisation in the history of the series.
"The increase in capacity utilisation suggests that firms have made adjustments to lower activity by trimming staff numbers and capital inputs."
Because businesses were so lean, Mr de Raad said when demand picked up firms might have to raise prices to expand capacity.
The survey also revealed that access to credit was not an issue for most firms, with weak sales their biggest barrier.
