Falling sales suggest growth 'headed below 1 per cent'

A sharp cut in the official cash rate may have underpinned a rise in activity in the financial sector, but businesses overall are reporting a general fall in demand. Photo / File

A growing number of businesses are reporting a fall in sales, suggesting economic growth could drop below 1 per cent this year, according to a leading survey.

The quarterly survey of business opinion (QSBO) for the September quarter showed a further drop in general business confidence, with a net 35 per cent of businesses expecting a general worsening in the economy.

While general business confidence has a political slant - economists say it is lower under Labour Governments irrespective of actual conditions - the survey also showed a further slide in reported activity, which is seen as a much better indicator of a looming slowdown.

A net 11 per cent of businesses reported a fall in demand over the last three months. The weakest measure since September 2010, Institute of Economic Research (NZIER) principal economist Christina Leung said the result pointed economic growth falling below 1 per cent.

Businesses also reported a drop in investment intentions for both office space and plant and machinery.

Leung said the weakness of the survey came as a surprise to NZIER, which has been undertaking the QSBO since the 1960s.

"It's a fairly downbeat report. The weakness surprised us," Leung said, with the fall in activity pointing to a general softening in demand.

"It's concerning in terms of what it indicates for the economy."

Institute of Economic Research (NZIER) principal economist Christina Leung.

Manufacturers were the most downbeat sector, despite a slight improvement in confidence since the June survey.

The survey was released less than 24 hours after the smaller ANZ business outlook survey, which the bank said showed confidence was at "dismal levels".

ANZ senior economist Miles Workman said the QSBO was more downbeat than its own survey, with an increase in companies reporting a softening in sales.

"With economic growth already running at a pace consistent with waning inflation pressures this will put the Reserve Bank on notice," Workman said.

"We think that by November, the evidence will be clear that a significant growth rebound is not on the horizon, and that the Reserve Bank will cut the OCR once again."