KEY POINTS:
The decline in economic activity in the June quarter may have been shallow - shallower at least than many economists were expecting - but it was broad.
Seven of the 11 sectors into which the statisticians divide the economy contracted. And one of the few to expand -
manufacturing - did so for the wrong reason.
The 1.4 per cent rise in manufacturing value added was driven by a 2.8 per cent rise in food manufacturing, as the meat works were kept busy slaughtering stock which farmers in a normal year would have retained.
Drought also took a toll on agricultural output (down 0.6 per cent) and on value added by the electricity sector due to the low hydro lakes.
Collectively the service sectors were negative (by 0.4 per cent) for only the second time in the past 10 years.
The biggest decline was the finance, insurance and business services sector, which includes real estate.
Construction recorded the largest fall, 3.8 per cent, leaving activity 6 per cent lower than it was a year earlier.
Overall, gross domestic product fell 0.2 per cent in the June quarter to be just 1 per cent higher than a year earlier.
Coming on top of the March quarter's 0.3 per cent decline, that fulfils the rule-of-thumb definition of a recession.
The more volatile expenditure measure of GDP recorded a 0.5 per cent decline. Household spending fell 0.3 per cent, following a 0.4 per cent decline in the March quarter - the first time since 1992 that it has fallen two quarters in a row.
Net exports and a steep fall in residential investment were also a drag on growth. Business investment rose 6.1 per cent in the quarter, but would have been flat without the arrival of an oil rig and associated equipment.
Economists expect September quarter GDP to record a contraction as well. Petrol prices did not peak until July and effective average mortgage rates have continued to rise as borrowers on fixed-term loans rolled off onto higher rates.
But they expect the decline in consumer spending to be bottoming out.
Oil prices have declined from their peak, though the impact is muted by a weaker kiwi dollar.
The Reserve Bank is easing aggressively, but the impact is muted by the international credit crunch.
The financial markets expect the bank to cut the official cash rate by another 50 basis points next month to 7 per cent and to have dropped it to 6 per cent by this time next year.
The first round of tax cuts takes effect from next week, though the pre-election opening of the Government's books in October is expected to reveal a much darker economic and fiscal outlook than in the May Budget.
"We still have the weight of the international credit crisis ... hanging like a millstone around out necks," said Bank of New Zealand economist Stephen Toplis.
"Nonetheless we have started to claw our way out of the morass and hopes are high that the quarter now ending, at least in a technical sense, will prove to be our darkest hour."
MORE CUTS LIKELY
* Gross domestic product fell 0.2 per cent in the June quarter. It fell 0.3 per cent in the previous quarter, meaning the economy is officially in recession.
* A further fall in the September quarter is widely expected, but growth is expected to return in the December quarter as lower petrol prices, lower interest rates and tax cuts boost consumer spending.
* With recession at home and a credit crisis abroad, the Reserve Bank is expected to continue to "front load" its easing, with another 50 basis points cut in the official cash rate next month.
