Business confidence has slumped to its lowest level in three years.

The latest New Zealand Institute of Economic Research figures show a drop in business activity.

Senior economist Christina Leung said profitability expectations are also down.

She's now expecting this year's annual growth to be around 2.6%.

"Prior to this, we did expect growth to be around 3%, so it does seem to be the case that businesses have revised down their expectations."

Christina Leung said business activity has fallen, profit expectations are down and growth is now expected to be around 2.6% this year.

She said the survey "does not explicitly survey the agriculture sector."

However "the effect of lower dairy prices are evident with dairy intensive regions faring particularly worse over the quarter."

Business New Zealand boss Phil O'Reilly said we've been weathering some pretty strong headwinds for a while now - including a high dollar, low dairy prices, and external risks such as those posed by Greece.

"It's unsurprising frankly that you've got a drop off in confidence."

"Bear in mind though that our economy is doing quite well, and we've got quite a bit of of gunpowder if we need to fire a few shots."