Business confidence has improved to pre-Covid levels but remains deeply pessimistic even with signs the economy may recover from the pandemic quicker than expected.
The Institute of Economic Research's (NZIER) quarterly survey of business opinion showed a net 40 percent of firms expect conditions to get worse over the near term compared with 63 percent in the previous survey.
The number of firms reporting a lift in trading in the past quarter was marginally positive, rising to its highest level in two years, compared with a net 37 percent reporting a decline in the previous quarter.
NZIER's principal economist Christina Leung said with the lifting of Covid restrictions the business mood, activity and outlook have all improved.
"This result supports our expectations of a V-shaped recovery in economic activity, as the New Zealand economy responds to the unprecedented amount of stimulus measures implemented by the government and Reserve Bank."
She said the building industry was the most confident with a net 7 percent of firms expecting an improvement in the economy, with manufacturers also feeling less pessimistic.
"Profitability expectations are improving, and that is making manufacturers feel more positive about hiring," Leung said.
Retailers were also feeling better on the back of improved demand and the number expecting to increase prices was also on the rise. But the broader services sector was the most pessimistic in the survey, with close to half expecting the economy to worsen.
A bright spot in the survey was an improvement in the employment outlook, with a net 16 percent of firms looking to hire staff in the next quarter.
"This recovery in employment demand has seen skilled labour shortages re-emerge, with a net 18 percent of businesses reporting difficulty in finding skilled labour," Leung said