HARARE (Reuters) - Business confidence in Zimbabwe fell even lower last year, the country's main industry body said on Wednesday, adding that it hoped talks between the government and opposition would reverse a deep economic crisis.

A survey by the Confederation of Zimbabwe Industries (CZI) carried out in 2007 but released only now showed only 2 percent of respondents were optimistic about the business environment compared with 5 percent in 2006.

The slump in confidence ran in line with a 28 percent drop in manufacturing sector output in 2007, following an 18 percent drop the previous year. A hundred companies took part in the survey.

The survey comes as President Robert Mugabe's ruling ZANU-PF and the main opposition Movement for Democratic Change begin negotiations that could pave the way for a power-sharing deal and end the impasse over Mugabe's disputed re-election.

Mugabe won a landslide victory in a June 27 run-off vote that was boycotted by MDC leader Morgan Tsvangirai and condemned as unfree by Western nations.

ZANU-PF and the MDC kicked off preliminary talks under South African mediation on Tuesday and are expected to begin negotiations in earnest on Thursday.

The negotiations are seen as crucial to reversing the country's economic slide. Zimbabwe is suffering chronic shortages of food and fuel and world record inflation of over 2 million percent.

"The CZI and the entire business community welcome this agreement to start the dialogue process that will lead to the resolution of our problems, which have serious political, economic, social as well as humanitarian dimensions," Callisto Jokonya, president of the CZI, said in a statement.

The CZI blames falling industrial output on the government's price controls and the sharp devaluation of the Zimbabwean dollar.

It said 80 percent of the country's infrastructure was currently idle due to shortages of skilled workers, power outages and a lack of foreign currency.