What is the risk of NZ falling into a recession?

More bad news for the United States economy does not mean New Zealand is about to tip into a recession, economists say, but that is cold comfort for struggling households and businesses.

The US just reported its second quarter of decline in gross domestic product (GDP), down 0.9% in the second quarter after falling at an annualised rate of 1.6% in the first three months of the year.

Two consecutive quarters of decline are considered a recession, although in the US the official decision is made by a panel of experts.

Westpac senior economist Satish Ranchhod said the bank was not forecasting a recession for New Zealand, but times were definitely tough.

‘‘We are facing some pretty big headwinds as an economy, between the squeeze on the cost of living, rising interest rates, and that downturn in the global economy, there is the chance we could see a contraction in New Zealand economic activity,’’ he said.

Soaring inflation has prompted central banks around the world, including New Zealand’s Reserve Bank, to lift interest rates to help keep a lid on rising prices, and there are concerns they might overshoot.

House prices are falling, and New Zealand’s GDP declined 0.2% during the March quarter, following a 3% rise in the previous quarter.

June quarter GDP is released in September.

The New Zealand economy was slowing, but it was still in a good spot, Ranchhod said.

‘‘We’ve got unemployment at a record low. If we did see a bit of a slowdown or even if we did see a brief recession, we’re still pretty well positioned.’’

The most vulnerable bits of the economy were linked to the household sector, such as retail and hospitality.

One of the biggest drags on activity this year and into 2023 would be rising mortgage rates, which had increased quite sharply in recent months. Over the next six to 12 months, around half of mortgages come up for repricing and many people will see their mortgage rates increasing by 2% to 3%, he said.

Independent economist Benje Patterson said there was a difference between a technical recession and recession-like conditions.

New Zealand had a very soft March quarter because of the Omicron Covid-19 outbreak, but as the country got back up and running, and began welcoming visitors back, there may have been a rebound in the June quarter.

‘‘So when GDP data comes out for the first half of the year we’re probably going to have technically dodged a recession, but the reality is that doesn’t necessarily mean we don’t have recession-like conditions persisting within New Zealand.’’

That meant that businesses and households were pulling back on spending and activity. Households had less discretionary income, and falling house prices dented spending and made it harder to borrow.

Banks were also becoming more cautious about lending, he said.

The weaker than expected US GDP data did not directly change the situation for New Zealand, but it was another sign of the risks for key trading partners and the global economy.

Patterson had disagreed with the Reserve Bank statement when it raised rates earlier this month that economic risks were ‘‘medium term’’.

‘‘My comment was we must have different perceptions of time, and that’s just reinforced that for me, that these risks are nearer term.’’

If growth cooled faster than expected, the Reserve Bank might not go all the way to a 4% official cash rate.

‘‘The main thing they wanted to say to markets and to businesses was to pull your heads into line, inflation is a big beast, and we are going to aggressively go after that.’’

The New Zealand economy was slowing, but it was still in a good spot.