The Institute of Economic Research's September quarter business survey shows retail sector was the most pessimistic, displacing builders, whose sentiment improved slightly. File photo Photo: RNZ / Samuel Rillstone
Business sentiment has improved but remains deeply pessimistic in the face of rising costs, the struggle to find staff, and an expected slowdown in demand.
The Institute of Economic Research's September quarter business survey shows a net 42 percent of respondents think economic conditions will get worse in the coming year, compared with 62 percent in previous survey.
A net 3 percent of firms reported a lift their trading in the past quarter from a flat reading in the June survey.
But a net 14 percent expected a downturn in their own business in the coming quarter, slightly higher than the previous quarter.
NZIER principal economist Christina Leung said the negative economic and commercial headwinds have eased slightly.
"Businesses are still feeling downbeat, but less so.
"Demand looks to be stabilising at a lower level, suggesting a period of weaker growth in the New Zealand economy ahead."
A net 3 percent of firms reported a lift in their trading in the past three months, but the number expecting a fall in the next quarter increased slightly to 14 percent.
The survey showed 74 percent of respondents faced increased costs, with a similar level of expectation of future price rises, but the number raising their prices or expecting to fell to 65 percent from 76 percent.
Leung said the survey pointed to the Reserve Bank's aggressive interest rate rises having an effect on demand and inflation pressures.
Finding skilled staff remained a major constraint, while more firms' reported their profits have fallen or were expected to fall, and were likely to cut their investment in building and machinery.
The retail sector was the most pessimistic, displacing builders, whose sentiment improved slightly.
Leung said there was some surprise in the resilience in the economy, but cost pressures and slowing demand were still prevalent.
"The New Zealand economy remains very tight, and further monetary policy tightening will be required to rein in inflation."