The latest survey showed a seasonally adjusted net 67 per cent of respondents expected conditions to weaken, versus a net 28 per cent in the prior survey.
The headline number marked the lowest level since 2008 and services and manufacturing were the most pessimistic.
Firms' own trading activity – which provides a better indication of demand – was not as bad. The net 11 per cent of respondents saying they experienced weaker activity was unchanged from the prior quarter.
Even before the lockdown, businesses were much more negative about the future with a net 13 per cent expecting weaker demand in the June quarter – versus 5 per cent of businesses that had expected an improvement in demand in the previous survey.
"It's really in the June quarter, when the negative sentiment starts to bite," said NZIER chief economist Christina Leung.
Leung said that NZIER hasn't firmed up its expectations for economic growth in the current environment "but it is looking like annual GDP growth will be under 1 per cent."
She said the biggest challenge for businesses was the uncertainty, in particular around how long the lockdown would last.
"With all this uncertainty, businesses are finding it difficult to plan."
She said two factors would be key for a turnaround in economic output.
First, the length of the lockdown, and second, how successfully New Zealand manages to surpress Covid-19 in the long term.