Official data released on Thursday showed the Kiwi economy contracted by 0.9 per cent in Q2, well above with market expectations of an 0.3 per cent fall.
NZ is again feeling very recessionary, with gross domestic product falling in three of the last five quarters.
Finance Minister Nicola Willis said blamed external factors for the shock result.
"International turmoil and uncertainty relating to tariffs clearly had an impact on firms' and households' willingness to make investment decisions," she said.
The US levied tariffs on NZ imports at 10 per cent beginning in April, which were raised to 15 per cent in August.Â
Whatever the cause, it's both an economic and political headache for the right-leaning coalition government, given Prime Minister Chris Luxon's earlier proclamations.
"As far as I'm concerned, going for growth is without a doubt priority number one," he said in his year-starting state of the nation address.
Mr Luxon hasn't shied away from that focus all year, saying he was driven by "growth, growth, growth" and was unapologetic about "pushing on and driving even more definitively into growth".
Unsurprisingly, the Labour opposition seized on the figures to paint Mr Luxon's first-term efforts as a failure.
"Christopher Luxon stood in front of New Zealanders in 2023 and said his business experience would fix cost of living and the economy. Instead, he has failed dramatically," finance spokewswoman Barbara Edmonds said.
Almost two years into his tenure, Mr Luxon suffers from poor personal popularity, with polls showing the right-leaning government may fall after one term.
With an election due in late 2026, he will benefit from stimulatory monetary policy all but guaranteed by the poor GDP figures that should help push New Zealand back to growth in 2026.
Unlike Australia, which has had a soft landing through the pandemic's economic headwinds, NZ has dipped in and out of recession.
Thursday's figures follow a post-COVID contraction across 2023 and 2024 which rivalled the depths of the 2008 global financial crisis.
It will could also supercharge an already-flagged interest rate cut at the Reserve Bank of New Zealand's next meeting in three weeks.
The official cash rate (OCR) currently sits at three per cent, with the central bank's board split on whether to cut by 25 or 50 basis points at last month's meeting.
They won't hesitate to cut again in October, and most likely again in November, according to banks who have revised their OCR tracking on the basis of the GDP figures.
"The RBNZ had previously indicated that they were interested in delivering more stimulus to provide guardrails against a deeper or more prolonged period of economic stagnation. That argument only grew stronger today," Westpac NZ chief economist Kelly Eckhold said.
Several banks are tipping the RBNZ to plumb new depths to take the OCR to 2.25 per cent by year's end, which would be its lowest ever rate outside of the pandemic.
That stimulation could save the Kiwi economy from another technical recession.
Following the released of the weaker-than-expected data, two-year swap rates slid 10 basis points to 2.7290 per cent, their lowest since early 2022.
The Kiwi dollar fell 0.5 per cent to $0.5932, well off an overnight peak of $0.6007.
The market is now pricing in a further 58 basis points of cuts to the OCR, up from 48 basis points before the GDP data was released.
The GDP data was particularly bad for construction and manufacturing, with 10 of the 16 industries surveyed by Stats NZ heading backwards.
with Reuters
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