ASB economists say the latest gloomy business confidence survey means the Reserve Bank will need to cut interest rates two more times this year- with a cut in August now "a done deal."

"With economic momentum continuing to slow, we now expect the RBNZ will cut the OCR twice more, in August and November, bringing the Official Cash Rate (OCR) to 1 per cent," ASB economist Jane Turner said.

The bank has already cut once this year taking New Zealand's official cash rate to a record low 1.5 per cent.

"We feel an OCR cut in August is a done deal and the timing of the second cut will remain dependent on domestic data, global events, the NZD and actions of offshore central banks."


ANZ economists are also picking two rates.

New Zealand business confidence fell to more than a 10-year low in the June quarter, with manufacturers the gloomiest sector.

A net 31 per cent of firms surveyed in the New Zealand Institute of Economic Research's quarterly survey of business opinion expect economic conditions to deteriorate during the coming months, compared to a net 28 per cent who were pessimistic in the prior quarter.

Business confidence was at its lowest level since March 2009.

"Today's release suggests economic momentum remained pretty lacklustre," said ANZ senior economist Miles Workman. "We think the RBNZ will conclude that additional monetary stimulus is needed to address this, and are forecasting two further 25bp OCR cuts, in August and November.

Adding to the gloom, the survey found a net 4 per cent of respondents expect their own business activity to decline in the next three months, versus a net 5 per cent that saw it picking up in the prior survey.

A net 4 per cent experienced a contraction in activity in the June quarter versus a net 2 per cent that experienced expansion in the March period.

"These measures suggest a softening in annual GDP growth to below 2 per cent over the second half of 2019," NZIER principal economist Christina Leung said.


Sentiment remained the weakest in the manufacturing sector with confidence among manufacturers at the lowest level since December 2008. A net 59 per cent of manufacturers expect general business conditions to deteriorate during the next six months versus a net 41 per cent in the prior quarter.

"That reflects softer demand and overall margin compression," said Leung, adding that manufacturers have seen a decline in both domestic demand and exports.

"The deterioration in the global outlook is starting to impact export demand for manufacturers," she said.

The QSBO showed profitability remained weak in the June quarter, with a net 27 per cent of firms reporting lower earnings versus 21 per cent in the prior quarter. A net 27 per cent expect to report lower earnings in the next quarter versus a net 16 per cent who had that view in the March quarter, NZIER said.

While profitability showed some signs of improvement in the construction and retail sectors, the dire mood in manufacturing weighed on the overall mood. "Businesses are still cautious about expansion" although there are some signs of optimism in business investment, said Leung.

The QSBO showed a net 4 per cent of firms intend to invest in new buildings versus a net zero in the prior quarter.

A net 4 per cent plan to invest in plant and machinery versus a net 2 per cent that expected to reduce investment in the prior quarter.

Firms are still finding it difficult to hire new staff, with a net 43 per cent saying skilled labour is hard to find, versus 50 per cent in March.

While the situation is slightly better "it is still acute by historical standards," said Leung.

A net 34 per cent found it hard to attract unskilled labour, compared to a net 33 per cent in the prior survey.

Companies still expect to face cost pressures with a net 40 per cent anticipating increased costs compared to 43 per cent in March.

In terms of experienced costs, a net 43 per cent reported higher costs in the June quarter, compared to 38 per cent in the prior period.

Pricing intentions fell, with a net 13 per cent expecting to lift prices in the coming quarter versus 27 per cent in the March quarter. A net 12 per cent raised prices in June versus 16 per cent in the prior period.

Leung said that, given these results and considering what the Reserve Bank of New Zealand has indicated in terms of its concerns about global growth, she is now expecting it to cut the official cash rate by 25 basis points in August to 1.25 per cent. She had previously expected a cut in September.

"As long as other central banks are cutting, with the effects on the currency, we are likely to be led lower," she said.

At this point, she is only expecting one more rate cut.

- Additional BusinessDesk