Photo: Unsplash/ Simon Kadula
Business sentiment has improved sharply but is still pessimistic as firms struggle with lower sales, leading them to shed staff and hold back on investment.
The Institute of Economic Research's September quarter business survey shows a net 5 percent of respondents think economic conditions will get worse in coming months, compared to a net 40 percent in the June survey.
Firms reported a decline in their own trading with a net 31 percent of firms reported a fall their trading in the past quarter from 27 percent decline in the previous survey.
The weakness was expected to ease in the coming quarter with a net 2 percent forecasting a drop in their own business from 13 percent in the previous quarter.
NZIER principal economist Christina Leung said businesses were showing cautious optimism in the expectation of further interest rate cuts and a rebound in consumer spending.
"The start of the easing cycle in the OCR (official cash rate) by the Reserve Bank ... and expectations of lower interest rates for the coming year appear to have supported this sharp improvement about the outlook ahead."
She said the retail sector showed the best improvement, despite the current weakness, with an expectation that sales will rise.
Leung said inflation pressures were easing with firms less able to raise prices, which would support further rate cuts by the RBNZ.
"The case can be made for either a 25 or 50 basis point cut to the OCR next week, although we have pencilled in 25 basis points."
The manufacturing sector was the most pessimistic as falling demand forced firms to cut prices, with the building sector also downbeat.