The retail sector was the most pessimistic, with the number reporting lower sales almost doubling. Photo: RNZ / Rebekah Parsons-King
Business sentiment has improved slightly but remains downbeat in the face of falling sales and continued inflation pressures.
The Institute of Economic Research's September quarter business survey showed a net 53 percent of respondents thought economic conditions would get worse in the coming year, compared with a net 63 percent in the previous survey.
More firms reported a decline in their own trading, while slightly fewer expected a worsening in the coming quarter.
NZIER principal economist Christina Leung said the economic and commercial headwinds remained strong and the need to make sales was the main concern for businesses.
"This softer demand environment seems to have reduced the ability of firms to pass on higher costs by raising prices."
The survey showed 68 percent of respondents faced increased costs and 45 percent expected to raise their future prices.
Leung said the major turnaround was that finding staff was no longer a major hurdle for businesses on the back of the strong immigration gains this year, with firms maintaining some appetite to keep hiring.
The retail sector was the most pessimistic, with the number reporting lower sales almost doubling as households faced higher mortgage costs and cut their spending.
"With around half of mortgages in New Zealand due for repricing within 12 months' time, many households will be refixing at much higher mortgage rates.
"This significant increase in mortgage repayments will drive further slowing in retail spending over the coming year, which should weigh on profitability for retailers."
Leung said the survey showed the Reserve Bank's rate rises have achieved its desired economic slowdown, although she did not expect the economy to go into recession, nor any future rate rises.
"On the basis of this survey, it does suggest with the easing of capacity pressures that the Reserve Bank will not need to raise the official cash rate again in this cycle."
The RBNZ reviews the cash rate on Wednesday 4 October, but forecasters overwhelmingly expect it to be held at 5.5 percent.
