Business confidence has taken a dip, with market volatility and softening sales turning sentiment negative.
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New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion for the first three months of the year showed a seasonally adjusted net 1 percent of firms expected the economy to worsen in the coming months.
That compared with the December survey which had a net 13 percent expecting an improvement.
The survey also showed companies were less optimistic about their own outlook making them likely to invest less and hire fewer staff.
NZIER senior economist Christina Leung said the building sector remained positive with a good pipeline of work ahead, but manufacturers are more downbeat and dairying regions are the most gloomy.
"We did see a marked lift in cost pressures in the building sector this quarter. Businesses seem to be fairly confident that they will be able to pass this on in the form of higher prices in the next quarter.
"When we look at what key changes have been since the end of last year, a large part of it has been the volatility in financial markets.
"It's reminded businesses how quickly things can change even if it is just in in financial markets and that's led to concerns that it will flow through into change within their own business.
She said the economy was expected to soften as the year went on and this would cause the Reserve Bank to cut interest rates again, possibly as soon as April.
