Confidence improved in the National Bank's latest monthly survey, but businesses are still despondent overall.
Only 13 per cent of firms surveyed expect the general business environment to improve over the next year, and 34 per cent expect it to get worse.
The net 21 per cent pessimism levelis, however, an improvement from a net 31 per cent in August.
"It just got overly pessimistic last time," said National Bank chief economist Dr John McDermott.
"It was at levels consistent with only 1 per cent growth next year, when all the other indicators are pointing to growth a bit above 2 per cent."
It was a reassessment, he said. "Firms are saying it won't be as good as the past year but it won't be as bad as we thought last month."
The improvement in general sentiment across all sectors was mirrored by a lift in firms' expectations of their own activity.
A net 23 per cent expect a pick-up in their own activity, up from 16 per cent last month.
Exporters' expectations are flat, but other indicators reflected the general improvement: hiring intentions, investment intentions and profit expectations all recovered some of their recent falls.
McDermott said that over the past few months prospects for the world economy had diminished because of weak sharemarkets and fears of war in the Gulf. That had led to subdued business confidence worldwide.
In the first half of the year, global weakness had been offset by a robust local economy, but now the domestic indicators were looking reasonably soft, McDermott said.
