Business confidence has fallen to its lowest level in three years, with low milk prices and softening construction activity at the forefront of issues.
The drop in activity indicators for the second quarter, to June, points to annual growth staying under 3% during the coming year, a marked drop from the 3.5% annual growth seen at the end of last year, the NZ Institute of Economic Research quarterly survey of business opinion found yesterday.
Institute senior economist Christina Leung said business confidence was at it lowest level since September 2012, revealing the New Zealand economy was losing momentum.
''The effects of lower dairy prices are evident, with some dairy-intensive regions such as Southland, Waikato and Canterbury seeing a net number of businesses expecting a worsening in conditions ahead,'' Ms Leung said in the report, released yesterday.
Economists are now widely expecting the interest-driving official cash rate (OCR) of the Reserve Bank to be pressured down to its record low of 2.5% again by October, implying three rate cuts by the central bank.
Ms Leung said experienced domestic trading activity, which closely mirrored gross domestic product (GDP) growth, dropped from 19% in the previous quarter to 10%.
''This is consistent with annual GDP growth remaining below 3% for the year to June 2015,'' she said.
Profitability expectations also fell, and businesses had now pared back plans to invest in plant and machinery and buildings, she said.
ASB senior economist Jane Turner said with business confidence declining ''sharply'' in the second quarter, that indicated slower economic growth during 2015.
''The second consecutive season of low milk prices along with the slowdown in construction activity growth are key factors weighing on business sentiment,'' Ms Turner said.
However, she said there would be some assistance for the economy, with lower interest rates and the lower New Zealand dollar helping support growth during 2016.
Westpac senior economist Satish Ranchhod said business confidence fell ''sharply'' in June and that pointed to a loss of momentum in the economy through the middle part of 2015.
''Notably, it's not just confidence that's down. Businesses across the economy have reported that activity softened in the June quarter, and fewer and fewer businesses are expecting a pick-up over the coming months,'' he said.
Mr Ranchhod said near-term inflation was still looking tame, with cost and inflation pressures remaining ''modest''.
