Business confidence slumps to a seven-year low - report

A new survey of business confidence shows 19 percent of businesses expect economic conditions to deteriorate further in the second half of 2018, with a particular drop in confidence in the regions of Taranaki, Otago and Blenheim.

The decline is more pessimistic than the previous quarter, when 10 percent of businesses expected worsening conditions.

Business confidence hasn't been this low since March 2011.

The New Zealand Institute of Economic Research (NZIER) quarterly survey of business opinion for June shows businesses are no longer expecting a recovery in the coming months, which is affecting their investment decisions and softening business intentions.

Report author Christina Leung said there was some easing in business confidence heading into the general election, then it dropped sharply when Labour took office, and has headed downwards since then.

"Businesses are feeling pretty downbeat," she said.

Domestic trading softened in the June quarter and expectations of future demand also eased.

"Softening of economic growth suggests moderation in GDP growth in the coming year," Ms Leung said.

"Retailers are the most pessimistic, due to softening sales and cost pressures. Profitability has continued to deteriorate."

A lift in the minimum wage is having the greatest impact on the retail sector, according to the report. Manufacturers are also more downbeat, reflecting a softening in demand.

Export sales have softened in the last quarter and the recent decline in NZD is also having an impact.

16 percent of businesses reported weaker profitability over the past year, and 12 percent are expecting a further decline in profitability.

Ms Leung said that's impacting investment in new buildings, plants and machinery.

In a bright spot, hiring is holding up, which points to solid employment in the coming year.

Ms Leung said the construction sector is pessimistic but activity is still strong, though there are some signs of softening.