The ANZ bank is predicting a double-digit rebound in GDP numbers out next week, but that may increase the chances of recession next year, its chief economist says.
The bank says the economy has been surprisingly resilient, helped by success in containing COVID 19, and it expects GDP to be up 14 percent for the third quarter.
It points to the housing-induced bump to domestic demand and the wage subsidy as key contributors to the economy's strength.
But chief economist Sharon Zollner said the strong rebound would increase the chances of a fall in GDP in the last quarter of this year and first quarter of 2021, leading technically to a recession.
She predicted that the economy's size would not match what it had been pre-COVID until the end of next year.
What stands in the way of that are structural problems within the economy, where issues of labour shortages and freight problems hinder produce getting to markets, as well as a border closed to visitors.
The housing market had been a mixed blessing, stimulating spending, but increasingly bad news for many, Zollner told Morning Report.
"There's no doubt that the strength of the housing market does create a bit of the buzz on the street. So higher prices are irrelevant to many and bad news for an increasing number of people, but nonetheless increase people's paper wealth...
"It does seem to increase spending, particularly on durables, cars and e-bikes, spas and new kitchens, particularly because we've spent a lot of time in our homes this year. People are keen to make them nicer places to be... so it does bump spending activity, construction activity."
She said the projected GDP level would be 1.3 percent less than what it was post-COVID lockdowns, which was remarkable, but said closed borders had knocked back GDP by about 5 percent.
"What that tells us you is the top of the cake is burning, while the middle of the cake is raw and on average it's perfectly cooked, so there's all sorts of strains and stresses in this economy, particularly in the market, with skills shortages, but also in the housing market as well and it's increasingly a political issue."
The Reserve Bank is bringing back LVRs to take the heat of out the housing market. But cutting interest rates again would not contribute to societal wellbeing, she said.
"It's a direct conflict at this point. From a monetary policy point of view a strong housing market is very helpful. From a financial stability point of view and a broader societal wellbeing point of view it is not helpful at all."
The trade war between China and Australia presents some opportunities for exporters here, but also sends a warning signal that New Zealand and its export economy remains reliant on a good relationship with China, Zollner said.
The economic super power has been subjecting Australian meat exports to COVID-testing.
"We are getting caught up in that COVID testing too. There are some short-term opportunities from what's happening to Australia, with lamb and forestry, but in the longer term it's really a shot across of the bow," she said.
"A warning to us that our increasing share of exports going to China is open to vulnerability... If anything would happen to that New Zealand - China relationship, we would really feel it."