WELLINGTON (BLOOMBERG) - New Zealand will enter a recession next year that could be deeper than expected, Bank of New Zealand (BNZ) economists said after a survey showed business sentiment continues to slump.

ANZ Bank's survey of business opinion for June, published on Thursday (June 30), "was littered with indicators that fit with our view that the economy is headed into recession," said Stephen Toplis, head of research at BNZ in Wellington. "If anything, they suggest any such recession might be deeper than we have pencilled in."

The business confidence index by ANZ Bank fell to minus 62.6, nearing the record-low of minus 66.6 reached in April 2020 when the country was in its first lockdown of the coronavirus pandemic.

Mr Toplis is currently forecasting a "mild" recession next year, when the full force of the central bank's aggressive rate increases and falling house prices will be felt. BNZ's forecasts show the economy contracting 0.2 per cent in the second quarter of next year and 0.1 per cent in the third.

Inflation and employment indicators remain sufficiently strong for the Reserve Bank to continue raising rates for now, Mr Toplis said.

However, it would not raise the official cash rate as high as markets currently expect, he added.

Investors are betting the central bank will lift the cash rate to 4 per cent or higher by February next year, swaps data show.

BNZ sees the rate peaking at 3.5 per cent.