Finance Minister Nicola Willis is pinning the blame for the economy's slump on "international turmoil and uncertainty" driven by the United States' tariff roll-out.
But Labour says other countries - like Australia - have fared the storm better, accusing the coalition of taking New Zealand backwards.
New data released on Thursday showed a sharp drop in GDP for the June quarter - down 0.9 percent - much worse than had been expected.
Speaking at Parliament, Willis said the US announcement - right at the start of the second quarter - had caused firms and households to put off spending decisions.
"The economy had been growing strongly in the previous six months, but suddenly had the stuffing knocked out of it," Willis told reporters.
"I feel for all those people and businesses who have been affected."
Willis stressed that the data was "backwards-looking" and there were signs the economy was growing again as interest rates fell.
"Lower interest rates are filtering through the economy. There is evidence of increased mortgage lending. And the impact of tariffs has not been as disruptive as initially feared. The outlook for most export sectors remains positive.
"All forecasters are expecting economic growth to strengthen from now on as the uncertainty about the impact of tariffs eases."
Labour's finance spokesperson Barbara Edmonds said the latest figures proved the damage being caused by National's "economic mismanagement" - a phrase often thrown at Labour by Prime Minister Christopher Luxon.
"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," Edmonds said in a statement.
Barbara Edmonds. Photo: RNZ / Samuel Rillstone
Edmonds said the government would blame "everyone else" for the poor numbers, but the country was clearly headed in the wrong direction.
"Australia's economy grew by 0.6% in the last quarter, which only highlights the failure of Christopher Luxon and Nicola Willis.
"Thousands of jobs are being lost, businesses are struggling to stay afloat, and record numbers of New Zealanders are leaving to find work overseas.
"New Zealand cannot afford another three years of National."
In response, Willis said the situation would be "a heck of a lot worse" under Labour. She contended that the US tariffs had an "outsized impact" on the New Zealand psyche given the country's small size and isolation.
"When the world sneezes, we feel it hard," she said.
Willis indicated the numbers would not motivate any change in game plan: "We have $7 billion worth of projects already kicked off or will be underway before Christmas."
She said the prime minister continued to have confidence in her ability to hold the Economic Growth portfolio and pointed to the strong results during the first three months of the year: "[US President Donald] Trump disrupted my momentum."
Labour deputy Carmel Sepuloni said both Willis and Luxon should be "ashamed" of their record.
"[Willis] didn't recognise international headwinds when we had a global pandemic," Sepuloni said.
"She cannot continue to blame others. Where to next? Is it the fault of the butcher, the baker, the candle-stickmaker? But not Nicola Willis?"
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