The flagging sentiment may increase pressure on the Reserve Bank to consider two cuts this year to the already record-low 1.5% interest-driving official cash rate (OCR).
The manufacturing sector is the most pessimistic: more than half of those surveyed expect economic conditions to worsen during the months ahead.
The New Zealand Institute of Economic Research’s latest quarterly survey of business opinion, for the quarter to June, is a key survey for economists and markets.
Otago manufacturing activity had eased in recent months, but remained in expansion mode. Nationally, the results were on the fence straddling expansion-contraction, BNZ-BusinessNZ data showed.
NZIER principal economist and head of membership services Christina Leung said business confidence was now at its lowest level since March 2009, with a net 31% of businesses expecting a deterioration in general economic conditions.
‘‘The downbeat mood was broad-based across most regions, with West Coast and Tasman the exceptions.’’
ASB senior economist Jane Turner said with economic momentum continuing to slow, she expected the Reserve Bank to cut the OCR twice more, in August and November, taking it to 1%.
''We feel an OCR cut in August is a done deal and the timing of the second cut will remain dependent on domestic data, global events, the New Zealand dollar and actions of offshore central banks.''
Ms Leung said manufacturers' confidence fell to its lowest level since December 2008.
Deteriorating profitability contributed to this, a net 3% of manufacturers cutting prices despite rising costs over the past quarter.
''This led manufacturers to pare back on hiring in the June quarter,'' she said.
The construction-work pipeline had improved, but firms' expectations of output for the next quarter were subdued.
''However, pricing power has improved for firms, with more firms able to raise prices to recoup margin.''
She said while profitability in some sectors was starting to improve, overall it had fallen to its lowest level since March 2011.
''Firms have reduced head count but are feeling more optimistic about investing in plant and machinery and buildings,'' she said.
There were also signs retailers were finding it easier to increase prices, although more than half of them still reported rising cost pressures.
''Retailers are reducing head count, likely in response to softening demand and rising labour costs,'' Ms Leung said.
