KEY POINTS:
Firms continue to take a grim view of their prospects in the National Bank's latest monthly survey of sentiment.
A net 4 per cent of respondents see their own outlook as deteriorating over the coming year, unchanged from the May survey. It is the fourth month in a row firms' own activity expectations have been negative, something not seen since 1988.
Hiring and investment have also slipped further into negative territory.
The survey's results continue to point to a contracting economy.
But with a net 41 per cent of firms saying they intend to increase their prices - the highest reading since 2000 - the Reserve Bank would remain wary, National Bank chief economist Cameron Bagrie said.
Firms' views of the economic situation have gone from bad to not quite so bad. A net 39 per cent expect worse times ahead, an improvement from a net 50 per cent in the May survey.
"The seeds of an upswing and the all-important realignment in the composition of growth are very slowly being sown," he said.
The dollar had started to fall, there would be tax cuts later in the year and interest rates cuts looked to be just around the corner.
But the economy had to contend with three simultaneous shocks: correction in the housing market, a global credit crunch and the mixed blessing of a commodity boom.
Along with the benefits of globalisation had come the challenges of more volatile exchange rates, capital flows and commodity prices including oil, he said.
The Reserve Bank had signalled it was prepared to look through a temporary spoke in inflation, Bagrie said, but there was a limit to how far reflation through monetary policy could go in an inflationary world.
"This does not mean monetary policy needs more levers to pull. It needs more friends, including fiscal policy."
