Business confidence continues to improve as the economy returns to normal but still points to a recession, the latest ANZ business confidence survey showed.
"A vigorous bounce out of lockdown is evident in the numbers, but the levels are consistent with our view that the recession is just starting," said ANZ chief economist Sharon Zollner.
The latest data show a net 34 per cent of respondents expect the economy to deteriorate in the coming year versus a net 42 per cent who were negative in May. In the preliminary reading for June a net 33 per cent were downbeat.
A net 26 per cent of firms are expecting their own activity to shrink versus the 39 per cent which had expected that in May.
Particular hotspots of weakness are employment, profitability and exports, Zollner noted.
"The outlook for the labour market is of particular concern at the moment, with the pressures from the loss of international tourism particularly pronounced for people-centric industries of tourism, hospitality and retail," she said.
About 10 per cent of firms report having more staff than a year ago, but almost half report having fewer. Roughly the same percentages apply to firms' plans going forwards, she said.
"It's not hard to see why – 63 per cent of firms are expecting lower profitability in the next year, offset by only 16 per cent anticipating higher profits," she said.
"New Zealand with a closed border is a significantly smaller economy, at least in the near term, and the recession is just starting to make itself felt," she said.