NZ business confidence hits 17-year low in March

by Gyles Beckford

WELLINGTON (Reuters) - New Zealand business confidence hit a 17-year low and housing permits fell at their fastest pace in five months, data showed on Monday, adding to evidence the economy is slowing sharply.

The New Zealand dollar eased on the numbers, though analysts said they would not bring an interest rate cut any nearer.

The National Bank of New Zealand's monthly business outlook showed a net 6.4 percent of companies expected their own business to deteriorate in the next 12 months, compared with 2.4 percent expecting an improvement in the February survey. [nWEL276502]

The last time respondents' own activity intentions were negative was in 1991.

"The (central bank's) talk will remain pretty tough, they'll still leave the door open, acknowledge a lot of the risks, but they need to see the weakness get into the labour market," said ANZ-National Bank chief economist Cameron Bagrie.

"They're going to end up moving policy late as opposed to pre-emptively, but that's a reflection of the inflation pressures we have in the system."

Earlier this month, the central bank, which raised rates four times last year to a record 8.25 percent, left them unchanged and ruled out any prospect of an easing before early to mid-2009 because of persistent inflation.

The New Zealand dollar NZD= eased about a third of a cent to a one-week low of $0.7895 after the survey's release, before rebounding to settle at $0.7910/20.

GLOOMIER OUTLOOK

The National Bank's survey's headline measure of sentiment also worsened, with a net 57.9 percent of respondents expecting the economy to worsen over the next 12 months and compared with a net 43.9 percent in the previous survey.

Inflation expectations for the year ahead rose to 3.29 percent compared with 3.26 percent in February, while employment, profit and investment expectations all deteriorated.

The slip in business confidence follows last week's first quarter survey of consumer confidence, which tumbled to a 10-year low amid rising prices, high interest rates and global market turmoil. [nWEL69955]

Earlier on Monday, official data showed a slowing in the previously strong housing and construction sectors.

Consents for new dwellings fell a seasonally adjusted 6.5 percent in February, the biggest decline since September last year. [nWEL000643]

Bagrie said the indications were now that the economy might contract in the three months to March 31, and that growth may slow to around 1 percent through 2008.

A Reuters poll of 10 forecasters on Friday had a median forecast for growth to slow to 1.7 percent in 2008, picking up only slightly to 2 percent in 2009. [nWEL217354]

That contrasts with official data, also released on Friday, showing gross domestic product grew 1 percent in the three months to Dec. 31 and by 3.1 percent on a year earlier.

However, New Zealand's economy showed similar signs of a sharp slowdown in 2006 only to confound expectations by gaining a second wind as the property market took off.

"The RBNZ has been trying for years to slow the economy sufficiently to reduce widespread inflation pressures, and will be waiting for concrete evidence it has inflation under control before softening its grip on the economy," said ASB Bank chief economist Nick Tuffley.

(Editing by James Thornhill)