Weaker house prices and the rising cost of living forcing people to close their wallets have created a "recession-like" environment as they grapple with the "crisis of confidence".
But an individual economist says the Bay of Plenty would be less vulnerable to an economic downturn.
The region will recover, albeit slowly, with the "sliver-lining" of bouncing back too fast meaning there would not be enough staff to meet demand.
It comes as two separate economic confidence surveys show Bay households and businesses remained pessimistic about the future.
Arrowtown-based independent economist Benje Patterson said the country was not technically in a recession as the June quarter had bounced back from an Omicron-riddled March quarter.
"From that perspective, it is going to require us to have a bad September, a bad December and we wouldn't know until February or March next year if we have technically entered recession."
But he said the economy felt "really flat" with people more cautious about spending, which pointed to a "recession-like" situation.
"It is not a deep recession by any means... It is just that we are grappling with a severe crisis of confidence and really high inflationary pressures."
Patterson said New Zealand's recovery from having essentially zero international tourism was going to be slower than expected.
A "silver lining" was if things recovered too quickly there would not be enough workers to fill demand, he said.
"There is a risk if things recover too fast that it actually degrades the tourism experience because we don't quite have the staff on offer to deliver a high-quality experience to people and have sufficient opening hours.
"Some restaurants have had to rationalise because there are staffing shortages and have reduced hours. If we have slightly fewer tourists it puts less pressure in the short run."
The flipside was while Kiwis would still travel overseas to reconnect with family others would opt for easier and cheaper getaways and choose to travel domestically.
"For somewhere like Rotorua, that might mean they do a little bit better out of the Auckland drive market."
Mortgage rates had also risen "dramatically" and were squeezing household budgets.
"That is not something to underestimate."
The blow to the Bay was going to be "variable", he said.
"The primary sector has got very strong returns and that is going to help stabilise a lot of the Bay of Plenty."
But, he said, while farmers and orchardists were getting good returns they had a lot of cost pressures too.
"Their margins are good enough but they are not as good as the high commodity prices would suggest.
"There is reason to believe that high commodity prices will be sustained even with global demand being affected by the recession and that is simply because of geopolitical factors such as the war in Ukraine."
Europe was also starting to think about how it could ensure the resilience of its supply chain from a food security perspective, he said.
"Those factors will help... and there will be parts of the Bay that should go okay."
The Bay economy was "diversified" and, overall, the region was one that was less vulnerable to a recession.
"But that doesn't mean there will be individual sectors that won't be severely challenged by the current environment."
The flexibility of households and businesses to adapt to changing environments and make the most of opportunities despite challenges would help soften the blow, he said.
There were also more people working remotely for employers in bigger cities and even internationally, he said.
"That is something we didn't see during the GFC, we didn't have a proportion of people who were bringing in good incomes from outside."
The latest Westpac McDermott Miller Regional Economic Confidence Survey showed Bay of Plenty household confidence rose 6 points over the June quarter but remained in negative territory at minus 8.
In the latest Westpac Regional Roundup, industry economist Paul Clark said economic activity in the Bay reflected a mixed picture.
Clark said the weakening of house prices, especially in Tauranga and Rotorua, as interest rates rose and demand from Auckland buyers tailed off was likely to have impacted spending in the region.
But, he said, that was not the only factor likely to act as a drag on spending.
"With interest rates rising, higher debt servicing requirements will weigh on discretionary spending over the coming year. Expected cost-of-living increases are likely to further dampen spending."
However, he said, spending could be supported by gains elsewhere in the local economy.
"For example, kiwifruit growers in the region should see their incomes rise over the coming year following this year's bumper harvest."
New Zealand Kiwifruit Growers Inc said, in a media statement, that the industry contributed nearly $1.8 million to the Bay this season.
Clark said opening the borders to overseas visitors was also likely to be a boon to tourist hotspots like Rotorua.
Meanwhile, he said it was expected log prices would remain modest before a pickup in the Chinese economy as Covid restrictions eased meaning higher log export prices later in the year.
MYOB Business Monitor 2022 data showed, that in the year since the first quarter of 2022, 74 per cent of small-to-medium businesses in the Bay believed New Zealand's economy would decline – six percentage points higher than all SMEs surveyed nationwide.
Only 9 per cent believed it would improve in the next year.
A total of 41 per cent said their revenue was down on the same time a year ago and just 15 per cent said their revenue was up.
A total of 35 per cent expected their revenue in 12 months' time to be down but nearly a quarter (22 per cent) expected their revenue to increase.
MYOB head of go-to-market Jo Tozer said its 2022 Business Monitor showed a significant drop in confidence across all regions compared to last year.
Tozer said there were many reasons for particularly low confidence from small-to-medium businesses in the Bay, including operating under economic pressures, staffing shortages or tighter cash flow.
"With discretionary spending tightening as the cost of living increases, many businesses in the Bay and across the country will be closely monitoring consumer confidence, as well as their own price points, as they seek to manage increases in expenses and likewise forecast or plan for the months ahead."
Small businesses have had to be innovative and adaptive not only to continue operating but to maintain sales and improve their competitive edge.
"We have seen that digitisation has played a big role in helping to boost the financial health of some businesses."
Tozer said many businesses would now be bracing themselves for more headwinds while continuing to make up for any lost ground as further economic challenges arose.
"Those businesses which have been able to creatively attract and retain customers will need to pull out all the stops again, as rising inflation puts another dampener on consumer spending."
Tauranga Business Chamber chief executive Matt Cowley said profitable businesses had been more flexible to the extreme demand peaks and supply disruptions.
"They may have also been able to increase prices to cover increasing costs."
Cowley said profitable business leaders had prioritised working on their business, rather than being caught within operations.
"Standing still, or not re-evaluating plans, will unlikely be bad news for many vulnerable businesses if they keep doing the same things expecting things to change."
Cowley said while New Zealand was starting to feel the hangover after two years of Covid stimulus, the Western Bay would likely remain one of the top-performing economic regions.
"Western Bay's population growth is defiant of economic downturns, we have low unemployment, and we have strong primary sector exports.
"Borders are opening to tourists, and we hope that immigration processes improve so skilled migrants can fill critical roles across a number of sectors.
"Some businesses may close, but their staff will be snapped up by other employers pretty quickly."
Rotorua Business Chamber chief executive Bryce Heard said there would be a wide variation of confidence between different sectors.
"We are seeing a diverse range of views with the majority erring on the side of an economic slowdown.
"The onset of winter is also a factor, so we expect the slow down to last for a while."
How Bay businesses are faring
Tough and "tumultuous" is how some Bay business owners have described the last three years.
While some still are still battling the inflation bull, others have been able to adapt and move with the tide.
Bay of Plenty butcher Doug Jarvis said butchers across the region were "really struggling".
"We are doing very well but it is a struggle because the prices of fuel, rent increases, and rates increases..."
Jarvis said his electricity bill at one shop had risen "100 per cent" and the other by "70 per cent".
"There are all these costs... it is just never-ending."
And just because his costs had gone up he could not simply put up his prices.
"Otherwise no one will come into the shop. It is a battle doing your costs every day."
Revenue had been "steady" but it had not climbed.
His busy period was "barbecue season" over summer and Christmas time but even that had been quiet due to the border closures.
Jarvis said the past three years had been tough and he felt for the cafes and restaurants.
"Luckily, I have a website and that got me through. I don't think I would be here without it."
Meanwhile, BOP Event Hire co-owner James Mollison said he was in a "slightly unusual position".
The business, which covered Tauranga, Rotorua, Taupō and Whakatāne, provided hire equipment for exhibitions, tradeshows and corporate events.
"The exhibitions and tradeshow part of our business has really improved dramatically."
The business had pivoted during lockdown to offer hire equipment to build temporary Covid-19 vaccination centres, he said.
"We were insulated to quite a reasonable degree from the downturn. Although it wasn't anything like the revenue from the bigger events it did give good ongoing business."
Mollison said the appetite for people to socialise in person again had "certainly returned".
"We are looking at a good recovery in the latter part of the year..."
He described the last few years as "tumultuous" with the initial lockdown proving worrying and concerning.
"We wrote off hundreds of thousands of dollars worth of business cancelled."
But adapting to building vaccination centres gave them "good reprieve".
"It was a challenging ride but we survived well," he said.
"I am optimistic we will get back to levels we were previously."
He said he knew of some casualties of Covid as some Rotorua businesses had to close.
"But the majority of businesses have managed to box on."
• Note: The 2022 Business Monitor survey was conducted by independent market research firm Kantar, from February 3 to March 7 and polled a national sample of 1006 SMEs. In total, the Bay of Plenty sample comes from 51 SMEs in the region.