The Opposition believes the contraction in Gross Domestic Product (GDP) reported on Thursday reveals New Zealand's economy has "deepening cracks".
But Finance Minister Grant Robertson says despite the "modest decline" in GDP the Government remains "well positioned" to help Kiwis with the cost of living in a "challenging global environment".
StatsNZ on Thursday revealed GDP in the December quarter decreased 0.6 percent, weaker than that predicted by some banks and worse than the 0.7 increase expected by the Reserve Bank in its February Monetary Policy Statement (MPS). Annual growth was 2.4 percent.
As the result is for the December quarter, it doesn't take into account the impact of the Auckland floods or Cyclone Gabrielle.
Manufacturing saw the biggest decrease of the sectors tracked, down 1.9 percent, while retail trade, accommodation, arts, transport and warehousing were all also among those driving GDP downwards. Business services was up, while household spending was flat.
Robertson said the economy had grown "strongly" in the two quarters prior - up 1.6 percent in the June quarter and 1.7 percent in the September.
"While GDP is likely to move around a bit as we continue to recover from COVID, our economy is nearly 6.7 percent bigger than before the start of the pandemic, ahead of most countries we compare ourselves with," Robertson said.
He said 2023 "was always going to be a challenging year", with the global economy still "volatile" and recovering from COVID-19 impacts.
"This result shows the strength of the economy in this challenging environment. We are well-positioned to support New Zealanders dealing with cost of living and the impact of flooding and cyclones with near record low unemployment, rising tourist numbers and the Government's books in solid shape."
Robertson said the Government would continue to focus on supporting Kiwis experiencing cost of living pressures while "carefully and responsibly managing the Government's finances".
"Today's data shows central government consumption fell 2.8 percent in the December quarter and the Treasury has already noted that the Government's fiscal policies are helping reduce inflation pressures," Robertson said.
"We will continue to take a balance approach that includes investing in the strong public services that New Zealanders need, in hospitals, schools and housing. We will address climate change, with a focus on adaptation as the extreme weather events that we have experienced become more frequent."
The GDP contraction has led some to suggest New Zealand is on its way into a recession. A technical recession occurs when there are two consecutive quarters of GDP decreasing.
A shallow recession has been predicted for this year by the Reserve Bank, however it didn't expect GDP to fall quarterly until the June quarter of this year.
Reserve Bank Governor Adrian Orr last year admitted he was purposefully engineering a recession to tame inflation.
Nicola Willis, National's finance spokesperson, said the data shows the economy has "deepening cracks" and the result "is worse than many had anticipated".
"Excluding COVID-19 lockdowns, it is the weakest quarterly growth since the Global Financial Crisis. A stalling economy is yet more bad news for New Zealanders already battling sky-high inflation and rapidly rising interest rates."
She reiterated National's proposals to "reduce the tax burden on workers" - it would do this by indexing tax thresholds to inflation - as well as focusing the Reserve Bank on "inflation-busting" and removing red tape.
"National understands that a strong, growing economy is the key to New Zealand's financial security and being able to fund the public services citizens deserve," Willis said.
"Today's data confirms once again how badly our economy is travelling under Labour. The key question now is how much worse things will get."
The ACT Party is among those expecting New Zealand is "almost certainly headed for a recession".
"Labour needs to wake up and unleash the ingenuity of New Zealanders by reducing wasteful spending, giving it back in tax cuts, and ditching the stifling red tape," leader David Seymour said.
"Labour has mismanaged the economy and it deserves to be punished in October. A recession is when you lose your job, the recovery should be when Chris Hipkins loses his."
He said the New Zealand economy "should be on the way up as we move on from COVID-19."
"New Zealanders don't need Stats NZ to tell them what they're already feeling on the ground. Wages are falling behind inflation. Mortgage payments are up. The cost of just about everything is through the roof. All because Labour has sucked up too many resources and produced too little with them."
ASB economist Nathaniel Keall said GDP figures are "volatile, backward looking and are prone to substantial revision ar this best of times".
"The volatility is doubly so in the present environment, with the pick-up in travel over the latter part of 2022 and the impact of Cyclone Gabrielle keeping the path of growth lumpy.
"The hit from the Cyclone is likely to have constrained growth in Q1 given the disruption to both primary production and services activity. The subsequent rebuild is likely to boost construction and spending in the near term as dwellings and infrastructure are repaired and households replace damaged goods."
But he said it's clear "substantial headwinds" are building for the New Zealand economy over the medium term. A recession "is a distinct possibility" despite the economy's resilience so far.
"Headwinds to growth are manyfold. With inflationary pressures proving stubbornly persistent, the RBNZ has implemented a substantial amount of monetary tightening to cool the economy already, with much of the impact still not entirely felt.
"A cooler housing market is likely to weigh on construction. Cost of living challenges, higher debt servicing cost and soggy consumer confidence will soften consumer spending. Slowing global growth will cap demand for NZ exports."
