The Reserve Bank surprised the market last week by saying an OCR cut was now more likely than a rise in the OCR; which would stimulate the weakening economy.
NZIER's principal economist Christina Leung said profitability for businesses remained weak.
''Businesses are finding it increasingly difficult to raise prices despite rising cost pressures,'' she said.
However, she said more firms were looking to recoup margins by raising prices next quarter.
ASB senior economist Jane Turner said the NZIER's survey was quarter on quarter ''weaker than expected'' and consistent with gross domestic product [GDP] growth of just 0.4%.
''We're now expecting the Reserve Bank to cut the official cash rate by 25 basis points in May, followed by a second cut in August,'' Mrs Turner said.
KiwiBank chief economist Jarrod Kerr also predicted a similar OCR cut in May, but potentially a ''quick-fire'' second cut in June, or August, while the ANZ reiterated an earlier prediction of an August cut, albeit now skewed towards an earlier cut.
Mrs Turner described business confidence measures as ''also bleak'', activity expectations for the next quarter having plunged to the lowest levels since Canterbury's earthquakes in 2010 and 2011.
Ms Leung said for the quarter to December, 4% of businesses reported an increase in demand, but for the latest quarter to March that fell to 1% reporting weaker demand in the first quarter.
''Firms own trading activity is a better measure of economic growth, and the results suggest a further softening in annual GDP growth over the first quarter of 2019,'' Ms Leung said.
Businesses across most sectors reported a weakening in domestic demand, manufacturers remaining the most pessimistic, as domestic sales dropped sharply.
''In contrast, export demand strengthened despite the increasingly uncertain global growth outlook,'' Ms Leung said.
''Cost pressures remain intense in the sector, and with pricing still subdued, this is contributing to continued weak profitability.''
Ms Leung said the building sector's outlook was ''also gloomy'', with firms reporting weaker construction demand, while architects' own-office work reflected a ''softening'' in the pipeline of residential and commercial work in coming years.
''Despite the increase in cost pressures, a net 14% of building sector firms cut prices in the March 2019 quarter. This drove a sharp decline in profitability in the building sector,'' she said.
