A major international investment bank says next year the New Zealand economy will face its biggest slowdown since the 1991 recession.
Deutsche Bank says the economy will rebound in the final quarter of this year before taking a sharp downturn in the first two quarters of 2009.
The bank's chief economist in New Zealand, Darren Gibbs, says the economy will shrink by 0.7% in the current, final quarter of 2008 - its largest contraction since the 1998 Asian currency crisis.
Falling petrol prices, recovery from drought and the October tax cuts will give the economy a brief boost in the lead-in to Christmas.
But a shortage of credit, falling commodity prices and a weaker housing market will see the economy contract by 1.3% over the course of next year.
Mr Gibbs says unemployment will peak at 7% of the workforce before a recovery in world economic growth flows through to the local economy in late 2009.