Independent economist Tony Alexander says New Zealand's financial state is "deep in excrement" and poor-performing businesses are "getting weeded out" as a result.
His comments come after the latest quarterly GDP figures were released on Thursday, showing growth of 0.2 percent in the three months to March.
Aotearoa had been in a technical recession for the previous two quarters.
Alexander said in his latest newsletter businesses facing closure can blame the Reserve Bank's "incompetence to a great degree" during 2021.
"They kept pumping money into the economy and held interest rates too low for too long despite having the largest group of economists in the country who should have seen the economy did not need that sugar any longer."
But there are also other factors at play, he added.
The Reserve Bank has always been quick to cut interest rates to boost growth if the economy started to look shaky, he said, but that option isn't available like in the past.
When the share market crashed in 2000 during the "dot-com bubble", Alexander said the official cash rate (OCR) was slashed quickly from 6.5 percent to 4.75 percent.
And after the Global Financial Crisis (GFC) in 2008, the OCR was again slashed from 8.25 percent to 2.5 percent in less than a year.
Inflation didn't spike following the GFC and so "Western" countries started to worry about deflation around 2018, Alexander said.
As a result, the Reserve Bank cut interest rates in 2019 to a record low of 1 percent - but when the COVID-19 pandemic arrived in 2020 they had no wriggle room left to lower them further, he said.
"In the past when the crap has hit the fan the Reserve Bank have jumped in to save the day with large policy easing. That is not happening now.
"We are back deep in the excrement with the economy recording barely any growth for a year and a half."
Alexander said job growth has stalled, retail spending per person is down, Government debt has "blown out" and residential construction is slowing - at a time when Kiwis are leaving the country in droves.
More than 56,000 Kiwis moved overseas (net migration) in the year to April, according to Stats NZ/Tatauranga Aotearoa.
Despite all these factors, the Reserve Bank is not "riding to the rescue" by cutting the OCR, Alexander said, because inflation is still above its 1-3 percent target.
And the economic pain "is going to get a lot worse" before the end of the year, especially the sectors of residential construction, retail and hospitality, despite Aotearoa narrowly escaping recession, he said.
"Without the Reserve Bank’s sugar and without their quick throwing of such sugar on the economic fire when times are tough the under-capitalised, over-optimistic, least experienced operators across all sectors are being exposed.
"This year is about many of them getting weeded out."
Meanwhile, he said strong-performing businesses that survive might pick up "discounted assets".
The Reserve Bank will next review the OCR on July 10.
