Households and businesses are facing a long grind this winter with inflation remaining sticky and unemployment on the rise.
Westpac's May Economic review says while growth is not at disastrous levels, it is weak and the job market will do the "greater share" of the "required adjustment".
Chief economist Kelly Eckhold said past interest rates are now having their peak effect, which means a better inflation outlook for next year.
"For now we find ourselves with inflation still too high and with easy inflation wins behind us."
Household spending for the rest of the year will remain weak as high inflation, increases in borrowing costs and a cooling labour market continue to take effect. Unemployment is expected to reach a peak of 5.4 percent next year.
The report says while the housing market has been flat, house prices will rise higher than inflation due to strong population growth, rental demand and more investors entering the market in late 2024. Westpac estimates New Zealand needs 125,000 more houses in the next five years.
Businesses across the country have highlighted increasingly tough trading conditions with most firms reporting sluggish demand and a drop in forward orders. With hiring slowing they have also reported a fall in staff turnover.
As for the official cash rate (OCR), Westpac predicts no cuts this year, with it remaining at 5.5 percent until February 2025 when it should be clear that inflation will settle below 2.5 percent.
"Sticky domestic inflation means the chance of larger OCR cuts seems smaller than seen in February."
Rate hikes can't be ruled out but look unlikely, rather the Reserve Bank of New Zealand will respond to higher medium-term inflation by slowing OCR cuts in 2025.
"Spring will come - but we need to do the hard yards through winter first."
