Economists project New Zealand will avoid a technical recession - for now at least - but wide uncertainty remains around gross domestic product (GDP) figures to be unveiled on Thursday.
New Zealand's GDP contracted 0.2 percent in the first quarter (Q1) from three months earlier - showing the impact the Omicron outbreak had on the economy - and negative growth in Q2 would plunge the country into a technical recession.
While economists believed a slight rebound was on the cards for the June quarter - meaning a recession would be avoided - there were fears the annual figure would show next to no economic growth.
It comes as the Reserve Bank (RBNZ) aggressively tightens monetary policy to try and put a lid on skyrocketing inflation, which was at a three-decade high.
"The market estimates are pretty wild: you've got one bank [forecasting growth]... at 0.4 percent for the quarter, another bank up at 1.6," independent economist Cameron Bagrie told AM. "Let's say we get something in the middle - around 0.4 - that's going to put annual growth… at basically zero."
He also said New Zealand's economy had been "two steps forward, two steps backward" as the Omicron variant of COVID-19 tightened its grip on the economy.
In the fourth quarter of last year, prior to the Omicron outbreak, GDP rose by 3 percent.
"The economy's been pretty stagnant," Bagrie said. "A lot of that stagnancy is because of supply - we haven't been able to meet demand because of damage to the labour force, productivity's been poor so we've had a pretty flat year.
"I suspect that flat year is going to continue into the next 12 months because the next 12 months is really when monetary policy is really getting its economic bite."
The RBNZ said in its monetary policy report last month it expected just 1.4 percent annual average economic growth by the end of next year. That compares with 5.6 percent growth in 2021.
Miles Workman, a senior economist at ANZ, said New Zealand's economy had performed poorer than expected. The bank had downgraded its original 1 percent quarterly growth forecast to just 0.4 percent.
"While trying not to get hit by all the moving parts, we've landed on a central expectation that the economy expanded 0.4 percent q/q in Q2, avoiding a technical recession (defined as two consecutive quarters of negative growth)."
But, on the other side of the coin, Westpac had upgraded its growth expectations from 1 percent to 1.8 percent.
"That said, the margin of uncertainty around our forecast - already quite wide throughout the pandemic - is particularly large this time," it said in its weekly economic commentary.
"There were some big forces operating on the economy through the June quarter - not just the easing of the Omicron wave, but also the scaling back of the COVID response. And most importantly, the reopening of the border has seen the return of overseas tourists during what would normally have been the seasonal lull.
"We're expecting to see some big sectoral shifts in both directions and it's not at all clear where the balance will lie."
But Westpac was also picking inflation to take "quite some time" to stabilise.
"A bounce in GDP in line with our forecasts would leave us with a picture of an economy that's still operating well above its sustainable potential," its report said. "So it's likely that some parts of the economy (such as the household sector) will have some pain to wear in the years ahead, even as other sectors such as tourism begin their recovery."
In its Economic Weekly report, ASB also wasn't predicting all bad news and was even forecasting New Zealand to outdo Australia with its latest GDP figures.
"After some healthy manufacturing and services data last week, our final estimate has settled on 1.2 percent for the quarter," the report said. "An outcome around that magnitude would finally mean the economy has recovered to the size it was prior to last August's level 4 lockdown. And it would be nice to top Australia's 0.9 percent lift."
ASB said the economy appeared to have rebounded from the early stages of the Omicron outbreak.
"Severe capacity constraints, painful cost pressures, higher interest rates, weaker global growth and a cooling housing market are all a drag on economic activity, but NZ's strong terms of trade and resilient household balance sheets remain key supports."
BNZ was also picking economic growth of above 1 percent through the June quarter.
"As things stand, we formally estimate a 1.5 percent increase in real production-based GDP for Q2 2022," the bank said in its Markets Outlook.
"We do, however, expect GDP growth to slow to a quarterly pace of 0.8 percent in Q3."
May's Budget economic fiscal update from Treasury projected GDP to rise by 1.7 percent this year. https://www.treasury.govt.nz/sites/default/files/2022-05/befu22.pdf
