Following the global financial crisis last year local businesses reported a weak domestic economy and expected the situation would continue to decline with job losses likely.
In the New Zealand Institute of Economic Research's quarterly survey of business opinion released on Tuesday, 44 per cent of firms reported a decrease in their activity in the December quarter.
Forty-three per cent said they expected their trading activity to decrease further in the next quarter.
Seasonally adjusted 77 per cent said they expected the general business situation to deteriorate in the next six months. Sixty four per cent, not seasonally adjusted, expected it to get worse.
The number of firms intending to reduce staff over the next three months (32 per cent) was at its highest since June 1991. In the last quarter 7 per cent said they planned to cut staff.
Finding staff was easier across the board, 20 per cent of firms reported finding skilled staff was easier and 43 per cent said finding unskilled labour was easier.
Weak consumer demand was the key to reduced business activity.
The results confirmed there was a "huge scope" for the Reserve Bank to cut interest rates, probably between 50 and 100 basis points.
"But if they went beyond 100 points we wouldn't be too surprised about that," NZIER research economist Ryoko Ito said.
Nine per cent of firms said the incurred increased selling prices in the last three months, with 3 per cent saying they intended to decrease selling prices.
The number of firms (49 per cent) reporting a fall in profitability for the quarter was the highest in 26 years.
Forty six per cent expected profitability to decline in the next three months.
Businesses in every region showed a marked fall in business confidence to levels last seen in the 1970s.
Firms in the lower North Island had the biggest fall with 60 per cent expecting business conditions to deteriorate, from 11 per cent in the September quarter.
