The economy went into reverse at the end of last year as closed borders and a fall in commercial construction projects offset a hot housing market.
The fall in growth was in contrast to the near-14 percent surge in the previous quarter (File image). Photo: RNZ / Rebekah Parsons-King
Official numbers show gross domestic product (GDP) fell a seasonally adjusted 1 percent for the three months ended December, after it surged a revised record 13.9 percent in the previous quarter.
Consensus forecasts were for growth of 0.1 percent, but forecasts ranged between a fall of 1 percent and a rise of 0.7 percent.
"Activity in the December quarter shows a mixed picture - some industries are down, but others have held up or risen, despite the ongoing impact of Covid," Stats NZ senior manager Paul Pascoe said.
GDP was 0.9 percent lower than the same quarter a year ago, with the annual average growth rate at -2.9 percent.
The biggest drag on growth was construction, down 8.7 percent, as the pace of big commercial and infrastructure projects fell away.
Retail trade and accommodation, including bars, restaurants and hotel/motel stays, fell 5 percent reflecting the decrease in foreign tourists.
The per capita GDP - a measure of each person's share of the value of the economy - was 4.9 percent lower than a year ago.
New Zealand's quarterly growth rate compared with increases of 3.1 percent in Australia, 4.1 percent in the US, and 1 percent in the UK.
Economic turbulence
Finance Minister Grant Robertson said a levelling out of the economy was to be expected after the strong third quarter, and fundamentally it remained strong and was supported by government and Reserve Bank stimulus.
"There is also a lot of volatility within sectors in the economy. For example, on these measures construction declined in the quarter but activity remains at historically high levels."
He said the government would continue its policy direction and work with sectors still feeling the effects of the pandemic.
Some economists have speculated the economy will shrink further in the first three months of this year, making back to back contractions - the definition of a recession.
ASB senior economist Jane Turner said the economy was vulnerable still, but the broader outlook was still positive given the roll out of vaccines.
"From this point on, businesses should become more confident on the outlook and look to take action on employment and investment plans over the coming year."
She said the soft number should put paid to any notion the Reserve Bank might start raising interest rates in the medium term, as some parts of the money markets have been betting.
"The Q4 outcome has likely reopened the door to the possibility of cutting the OCR to zero or into negative territory if the NZ economy hits additional speed bumps on its road to economic recovery over the rest of 2021."