First quarter GDP likely flat, but New Zealand teetering on 'knife-edge' of recession - ASB chief economist Nick Tuffley

New Zealand's economy is likely to have expanded by the barest of margins in the first quarter, raising the possibility of the country avoiding a technical recession, an economist says.

Data due on Thursday would show New Zealand's gross domestic product (GDP) expanded 0.1 percent between January and March from the previous quarter, according to ASB chief economist Nick Tuffley.

The country's economy shrunk by 0.6 percent quarter-on-quarter between October and December 2022. 

But economic growth data is expected to be "hopefully a bit of a surprise" come next week, Tuffley said.

"GDP [is] looking a bit flat, in our view up 0.1 percent - a little while ago, it looked like we could potentially be heading into a recession. We could still be there, it's on a knife-edge but things are looking a little bit more encouraging than they were a few months ago," he told AM Early. 

"What we're seeing is, whilst the retail sector and the wholesale sector are feeling some challenges, some of the service sectors are doing quite well… we've also got the magic of a lot more people arriving," Tuffley added.

New Zealand's trade-reliant economy grew 2.4 percent in the year to December, slowing from 6 percent expansion during the same period in 2021.

Treasury has projected GDP growth of 3.2 percent for 2023, saying the growth outlook had improved due to rebuild activity from Cyclone Gabrielle and other severe weather events earlier this year.

The improving outlook has ignited a debate about whether the Reserve Bank (RBNZ) should tighten monetary policy again at its regular review, scheduled for July 12.

New Zealand's inflation has remained close to record highs in recent months, currently at 6.7 percent.

The RBNZ has said inflation is likely to decline to about 6.1 percent in mid-2023. The central bank, as a result, has signalled it can pause monetary policy tightening after moving the official cash rate up for the 12th consecutive time last month.

Tuffley expected the official cash rate to remain on hold for now.

"We think inflation will continue steadily tracking down so fingers-crossed we're at the peak of interest rates now," he said.

"The Reserve Bank's picking about a 0.3 percent [GDP] increase so if you get… a little bit of positive growth, it's not going to be too worried about that in terms of its view that it's finished [tightening].

"If there's really, really strong growth… Perhaps the economy's holding up better, perhaps inflation will be stronger than expected - that's when there's that risk that they could increase rates a bit further."