A leading economist says a recession is "somewhat inevitable" for the New Zealand economy.
It comes as house prices continue to fall throughout May, with the trend towards weaker housing market conditions likely to continue, CoreLogic said.
The official cash rate (OCR) reached its highest level since 2016 after the Reserve Bank raised it to 2 percent, up 50 basis points, in the face of 30-year-high inflation.
Infometrics principal economist Brad Olsen told AM on Wednesday even though unemployment is at record low levels, he thinks a recession is "somewhat inevitable".
"A recession does seem somewhat inevitable for the New Zealand economy and the hope really has to be it's a short, sharp recession and we don't see that sort of economic scaring, a long term hit that we usually associate with recession," he told AM Early host Bernadine Oliver-Kerby.
"Your right, at the moment the economic market is strong, we've got a lot of people in employment and that gives us a really strong buffer.
"The economy has a lot of the mentum over the last few years, as we've been able to power out of our various lockdowns and come through things pretty well, all things considered, certainly a lot better than the rest of the world."
Olsen said the "worry" is we're pushing the economy too hard.
"We could find ourselves in that recession not because we are down in the doldrums and economic activity has completely plummeted," he said.
"It just might be we find it really difficult to grow further with lots of price increases, a difficulty finding materials, all meaning we are having to import a lot more and the domestic economy here in New Zealand can't grow all that much further."
Olsen said New Zealand's current spending is slightly up on pre-pandemic levels in 2019, but inflation means our money is not going as far.
"It's important to note, those slightly better than 2019 figures come at a time when households and businesses are telling us they're at some of their most pessimistic levels on record," he said.
"There is quite a difference there, it says at the moment people think the future is going to be tough and there are some real difficulties coming up but at the moment there is enough confidence to keep going."
Olsen said with how challenging people are finding it, high inflation and increasing interest rates, this will likely see us in a recession.
"Realistically, the economy is trying to do more work than we have the materials and people to do and that's what's driving inflation," he told AM.
"It's also basically saying the New Zealand economy motor is running without oil and it's only for so long that we can run the motor hot before we burn it out.
"So the feeling is, before that time or approaching that point, that's where you could have a short sharp recession. The question now is if we get to that point how quickly we can power out the other side."
Olsen said if we do go into a recession, it won't be as bad as the global financial crisis in 2008.
"We are going to bounce around because we simply don't have the people, we don't have the resources to grow all that much more," he said.
"That could lead to a technical recession, but it's certainly not 2008/09 again, we are not back into the GFC, we are not in a great depression 2.0 but we are really struggling to grow.
Watch the full interview with Brad Olsen above.
