The revival of tourism was not strong enough to provide a lift for accommodation and travel sectors. (File image) Photo: RNZ / Rebekah Parsons-King
The economy contracted at the end of last year as key parts of the economy slowed sharply.
Stats NZ said gross domestic product (GDP) fell a seasonally adjusted 0.6 percent in the three months ended December, after a revised gain of 1.7 percent in the previous quarter.
The result was worse than had been expected by forecasters, who anticipated a 0.2 percent drop, and wildly at odds with the Reserve Bank's forecast of 0.7 percent growth.
The decline was driven by a fall in the manufacturing, exports and retail sectors.
"A fall in transport equipment, machinery, and equipment manufacturing corresponded to lower investment in plant, machinery, and equipment," Stats NZ senior manager Ruvani Ratnayake said.
"Reduced output in food, beverage, and tobacco manufacturing was reflected in a drop in dairy and meat exports."
Output in the manufacturing sector fell 1.9 percent for the quarter, while agricultural production was down 1.9 percent.
Service industries, which make up about two-thirds of the economy, contracted 0.1 percent, as the reopening of borders and revival of the tourism sector failed to give a lift to retail and accommodation, which eased 1.9 percent.
The construction sector was one of the few positives with growth of 1.6 percent, as it benefited from strong house building.
Economists, the RBNZ, and Treasury are all picking a "short and shallow" recession later this year.
ASB economist Nat Keall said there was much volatility about the numbers, but it was clear that headwinds were building throughout the economy.
"All up, the New Zealand economy has proven very resilient thus far, but a recession in 2023 is a distinct possibility."
But the persistence of high inflation meant the RBNZ could not give up on interest rate rises.
"The weaker starting point for economic activity and increased financial markets jitters overseas suggest less urgency for RBNZ rate hikes."
Analysts are scaling back expectations for the next RBNZ meeting in April to a rise of 25 basis points in the OCR.
The bigger than expected contraction saw the New Zealand dollar fall about a quarter of a cent against the US dollar, while wholesale interest rates also dropped.