New Zealand business sentiment fell to 3.2 per cent in March, down 7.1 per cent from the last quarter, led by concerns about the agriculture industry, the ANZ Bank survey showed.

Sentiment also dipped for retailers and manufacturers. In contrast, confidence lifted in the construction and service sectors.

While firms in the ANZ survey were more watchful about the economy in general, their own activity expectations lifted from 26 per cent to 29 per cent while profit expectations were up to 13 per cent from 12 per cent. Employment intentions rose from 12 per cent to 16 per cent. Investment intentions waned from 14 per cent to 11 per cent. Export intentions were lower at 21 per cent.

Westpac senior economist, Satish Ranchhod, said the latest business confidence survey highlighted two key things. First, the New Zealand economy is currently very two-speed in nature. Second, pricing pressures remain subdued.

“Looking under the hood, we see signs of a clear split in the economy,” Ranchhod said. “Business conditions are stronger in the construction sector, and to a lesser extent the services sector, than in other parts of the economy. That’s consistent with the very large pipeline of construction work in the economy, especially in Auckland.

“However, at the same time businesses in externally focused parts of the economy are facing a number of headwinds including low prices for some key commodity exports and sluggish demand in some of our key trading partner economies.”

Ranchhod said the pricing components of the survey emphasised that inflationary pressures in the economy remain very subdued. Expectations for inflation over the coming year nudged down to 1.38 per cent, which, he said was virtually unchanged from the low reached last month.

The number of businesses planning on increasing prices remained subdued, although there are some signs of upward pressure on prices in the construction sector and the retail sector – the latter likely reflecting the fall in the NZD over the past year.