Infometrics Gareth Kiernan warns businesses could face dire problems as overdue debt numbers expected to reach record levels

A property economist warns businesses could be forced to close as overdue debt numbers are expected to reach record levels.

It comes after the NZ Institute of Economic Research's (NZIER) latest Quarterly Survey of Business Opinion showed business confidence had dropped to its lowest level since the COVID-19 pandemic began.

The survey showed 62 percent of respondents think conditions will deteriorate in the coming year compared with 34 percent in the previous survey.

Infometrics chief forecaster Gareth Kiernan told AM on Wednesday his biggest concern is there's a real risk of businesses failing because of supply and demand issues.

"The survey showed that profitability is well down because firms are not able to progress their work, productivity is down, output is well down and of course, these businesses are still facing higher costs with materials being unavailable," he told AM Early fill-in host Nicky Styris.

"Probably the most concerning aspect for me just in terms of the proportion of overdue debtors out there is more than half of the firms in the building industry are expecting overdue debt numbers to increase in the next three months.

"That's by far the worst result on record and this survey has been going since the 1960s/1970s, so these are quite incredible numbers coming through and I think there is real pressure and real risk around business failures in the building sector because of this mix of supply and demand issues that is hitting the industry."

Kiernan said businesses in the building sector are struggling with supply and demand issues.

"We know there have been reports throughout the course of this year of just how difficult it has been to get hold of materials in the building sector, GIB has been the prime example, but whether it be timber or other componentry materials as well there have been hold-ups there and disruptions to supply chains," he said.

"At the same time, we know that house-building activity has been at incredible strong levels - record high number of consents over the last year as well - very difficult demand conditions and very difficult supply conditions and businesses in the building sector are struggling as a result of that."

Kiernan said the labour market is incredibly tight with three-quarters of businesses saying it's getting more difficult to find skilled and unskilled workers and he warned things could get worse.

"Well, we are moving forward into a place where the border is starting to re-open and normally you'd think that means better access to foreign workers as more people are able to come into the country," he told AM.

"But the issue we are really seeing in the labour market at the moment is because the borders are opening, young people are looking at the opportunities to travel overseas, looking at the cost of living and incomes in Australia and going, I could well be better off over there.

"So, we are actually seeing things potentially worsening in the near term rather than getting better, so no real solutions at the moment."