The construction sector and retailers are particularly hard hit, largely due to the rapidity of rising costs.
Business confidence in the quarterly New Zealand Institute of Economic Research survey is at a seven-year low and the number of those expecting a deterioration in the months ahead has almost doubled, from a seasonally adjusted 10% in the last quarter to 19%.
The confidence decline was across the regions. Taranaki, Otago and Blenheim were particularly downbeat.
NZIER principal economist Christina Leung said it was the weakest outlook since March 2011.
''What's concerning is the businesses are no longer expecting a recovery in profitability over the next quarter, and that's starting to impact on their planning,'' Ms Leung said.
The NZIER's pessimistic survey mirrored the last ANZ business confidence survey, but last week the Council for Trade Unions dismissed the negativity of recent surveys, claiming the sentiment was historic when new Labour-led governments began a first term.
The NZIER data, based on 4300 businesses surveyed on business trends, continued a recent trend. Businesses' views on their own trading activity remained more positive.
Ms Leung said the weak business confidence and deteriorating profitability was making businesses more cautious.
ASB senior economist Jane Turner said businesses' own activity fell, which was a good guide to the underlying momentum in growth.
It pointed to underlying growth of about 0.6%, quarter-on-quarter, but well below the 0.9% quarterly growth rate ASB had been predicting for the second half of 2018.
''Business intentions were split, with investment intentions plunging pointing to a slowdown in investment activity over the rest of the year. However, employment intentions remain elevated,'' Mrs Turner said.
That scenario created some uncertainty around how business would respond to perceptions of weak economic activity, and in turn, how much business decisions themselves might drive an economic slowdown, she said.
Ms Leung said although hiring was holding up across most sectors, investment intentions had declined.
She said the own-trading activity was a good indicator of economic growth.
''[However] domestic trading activity in the June quarter still softened ... with the proportion of businesses reporting higher demand decreasing from 15% to 7%,'' she said in a statement.
Westpac senior economist Anne Boniface said the sharp fall for the June quarter echoed weaker business sentiment recently seen coming in other monthly surveys
''The downbeat tone was also fairly widespread across sectors,'' she said.
She said domestic trading activity had fallen to its lowest level since mid-2012, although firms were more upbeat about their own prospects over the coming quarter than they were about the outlook for the overall economy.
Ms Leung said businesses' expectations of demand had also eased and fewer expected improved demand over the next quarter.
''These developments point to softer economic growth in the second half of 2018,'' she said.
She highlighted that higher costs were having a negative effect on businesses' profitability.
''Weak profitability was a feature across most sectors,'' she said.
Building sector companies reported intense cost pressures in their sector continued to have a negative effect on profitability.
''Building sector firms are no longer optimistic about a rebound in profitability, with a 14% expecting profitability to worsen in the next quarter,'' she said.
Similarly, the retail sector was particularly downbeat. Confidence fell to its lowest level since March 2009, a likely contributor being the minimum wage hike, causing a sharp cost increase, she said.
''Profitability in the sector fell sharply, as retailers struggle to pass on substantial cost increases fully through raising prices,'' she said.
