Economists are predicting a flat - or slightly down - March quarter, as the effects of the Covid-19 coronavirus and the drought come to a head.
Photo: 123RF
The Institute of Economic Research's (NZIER) latest Quarterly Economic Predictions picks the virus impact will be short and sharp, with the economy gradually recovering towards the middle of the year.
Principal economist Christina Leung said the effects of the virus outbreak will lessen over time, but there could be a long tail, particularly for exporters.
"We're seeing a lot of the effects on log and seafood exports... we do think the effects will linger over the coming years."
"There is still a great deal of uncertainty over the magnitude and duration of the effects, but we do expect in the short run the effects will be particularly sharp for exporters of services so those that are exposed to tourism and education."
She said a small decline in growth in the March quarter was possible.
"Just given the sharp decline in exports, a large part of how the New Zealand economy will fare will depend on the extent to which exporters can redirect some of the exports to other markets."
NZIER said the fundamentals of the economy remained strong with a robust housing market and recovering business confidence.
The predictions were largely in line with other forecasts.
The Reserve Bank has said it expected the main effects to be contained to the first half of the year.
Similarly, BNZ head of research Stephen Toplis said the effects of the drought should not be downplayed and would likely show in the first half of the year.