The economy fell less than expected from the re-emergence of Covid-19 and the resulting lockdowns.
There were marked falls in consumer spending after the lockdown in August. (File image) Photo: RNZ / Rebekah Parsons-King
Official numbers show gross domestic product (GDP) fell a seasonally adjusted 3.7 percent for the three months ended September, after it grew by a revised 2.4 percent in the previous quarter.
The quarterly contraction was the second biggest since the data started being collected, the biggest being last year's second quarter, which showed the impact of the first Covid-19 lockdown.
Consensus forecasts were for a fall of about 4.5 percent.
"The four industries with the largest falls in activity were retail, accommodation, and restaurants; manufacturing; construction; and arts and recreation as they were the most affected by lockdown measures," Stats NZ senior manager Ruvani Ratnayake said.
The services industry, which makes up about two-thirds of the economy, fell 2.7 percent, with retail, food, and accommodation significant drivers.
"Households spent less on services such as eating out, accommodation, and domestic travel, and less on durable items such as clothing, motor vehicles, furniture, and audio-visual equipment," Ratnayake said.
The construction sector, which has been a key driver of growth this year, fell 9.6 percent, manufacturing was down 7.6 percent, and agriculture was 2.8 percent.
Business investment also fell, but imports rose more than 7 percent leading to higher inventories, as businesses bought big machinery or built up stocks for future sale.
The economy was 0.3 percent smaller than the same period a year ago, but the annual average growth rate - based on growth averaged over the previous four quarters - slowed to 4.9 percent from 5.3 percent.
ASB senior economist Jane Turner said for the economy to be only a touch softer than a year ago despite all the Covid-19 disruptions was "phenomenal".
"The result reflects the underlying momentum heading into the lockdown and the resilience of the New Zealand economy."
The more important issue was how quickly the economy bounced back from the latest Delta outbreak, she said.
"A key determinant will be how household spending growth holds up over 2022 in the face of a number of headwinds including the higher cost of living, higher interest rates and some uncertainty as New Zealand adjusts to living with Covid-19."
Turner said the Reserve Bank would keep raising the Official Cash rate, currently at 0.75 percent, through next year to counter strong inflation pressures.