Disappointing results from the survey of manufacturing in the June quarter could mean the economy contracted during those three months, an economist says.
Total manufacturing volumes fell 3.4% in the three months to June, compared with the previous quarter, while the value of manufacturing dropped 2%.
The main contribution came from a sharp drop in meat and dairy product manufacturing. Excluding meat and dairy products, volumes rose 0.1% while the value of sales declined 0.6%.
Bank of New Zealand economist Doug Steel said the outcome was weaker than expected and shows how hard the drought hit in the second quarter in terms of processing of meat and dairy products.
"In addition to that, the volumes of the manufacturing sector associated with the building upswing is disappointingly weak," he says.
However, Mr Steel expected there would be a big bounceback in the third quarter.
ANZ Bank economist Mark Smith also downgraded his forecast to 0.2% growth, from 0.3-0.4%.
"To a large extent, that will reflect stronger service sector activity that we're likely to see coming through," Mr Smith said.
"The key thing with that is that confidence gauges are still picking up and are pointing to a picking up of activity in the second half of the year."
The survey shows meat and dairy product manufacturing volumes fell 10% but the value of sales fell just 5.8%.