Business confidence has improved but companies still face a contracting economy for the rest of the year, the New Zealand Institute of Economic Research says.
Its latest quarterly survey of business opinion found firms are feeling less pessimistic about the economy, but many are still planning to lay off staff.
Households have been warned the worst of the recession is yet to come. The institute predicts unemployment will peak by the middle of 2011, at about 7.8%, or 156,000 people.
The survey shows a net 36% of firms reported a decrease in their output or sales, pointing to another quarter of recession.
However, businesses were less pessimistic than they had been previously. A net 10% of firms expect a decline in their own activity in the next three months - a significant improvement on the net 36% which expected a decline last quarter.
The institute says the recession is not over yet and the latest data does not alter its view of a continued contraction until the December quarter.
The survey found a net 31% of businesses had cut staff over the past three months, and a net 19% expected to make future staff cuts.
NZIER chief executive Jean-Pierre de Raad says businesses are running leaner, and closer to capacity, than they were.