Sales, profits, investment and employment growth also moderated during the June quarter, according to the Commonwealth Bank - Australian Chamber of Commerce and Industry (ACCI) business expectations survey.
"The survey shows quite startling that the impact of slowing domestic demand is starting to take its toll on Australian business," ACCI's director of industry policy and economics Greg Evans told reporters in Canberra.
The survey's general business conditions index fell to a five-year low of 46.6 in the June quarter from 52.0 in the previous quarter.
A reading below 50 signals more respondents are suffering weaker business conditions than growing conditions.
Looking ahead to the September quarter, business expects the index to fall further to 46.0, the lowest level since the survey began in 1994.
Sales, profits, investment and employment growth moderated during the quarter, Evans said.
"Encouragingly on the inflation front, both wage and non-wage costs have indeed moderated, as have business input prices," he said.
The sales revenue index fell to 52.6 in the June quarter from 56.9 in the March quarter, while profits dropped to 40.7 from 45.6 and employment declined to 52.0 from 54.4.
Only export sales were sound - with its index rising to 52.6 from 51.9 - continuing to grow over the quarter despite a strong Australian dollar.
"ACCI considers moderation in wage and non-wage growth as well as declining business confidence and profit growth reduce the possibility of a wage-price inflation spiral, despite headline inflation hitting a 13-year high of 4.5 per cent in the year to June," Evans said.
"Given the notable slowing in growth, ACCI considers that an interest rate cut should be considered as early as possible."
The Reserve Bank of Australia is holding its monthly board meeting on Tuesday.
Economists are tipping the central bank to leave its key cash rate at 7.25 per cent for a fifth straight month.
