WELLINGTON - NEW Zealand is likely to become the second developed country to slide into recession this year, officials and economists said on Tuesday.

The country's Treasury said in a report that it believed the economy had shrunk for the second successive quarter, a sequence that would meet the most common definition of a recession.

'Our view is that the economy contracted for the second consecutive quarter in June,' the Treasury said.

The economy shrank 0.3 per cent over the three months to March. Official growth figures for the second quarter are due next month.

Economic growth in the 2008 calendar year was expected to fall below previous forecasts, coming in at between 0.5 and 0.75 per cent, the Treasury report said.

Westpac Bank also forecast a bleak short-term future for the economy.

It said New Zealand was likely to be the second country in the Organisation for Economic Cooperation and Development to slip into recession this year after Denmark. The organisation groups industrialised nations.

'The reason we experienced recession earlier than other countries is the drought, which we estimate knocked one percent off GDP in the first half of the year, hurting farmer production, a major contributor to the economy,' research economist Dominick Stephens said.

'It also reduced hydro-electricity generation, causing some manufacturers to curtail production,' he said.

Mr Stephens said consumers were also tightening their belts, as the global credit crunch forced up interest rates, and higher petrol prices strained budgets.

'We think the consumer is out for the count for the foreseeable future. We have been spending more than we earn on the back of rising housing prices. It was always going to come crashing down,' he said.

Finance Minister Michael Cullen played down the Treasury report.

'The tax cuts coming on October 1 will feed some demand back into the economy, the drought's over, so expansion should pick up,' he said, adding a fall in the New Zealand dollar would help the export sector.

The last time New Zealand faced successive quarters of negative growth was more than ten years ago, between September 1997 and March 1998.

Official figures released last month showed that Denmark had become the first European Union country to fall into recession in the aftermath of the US subprime mortgage crisis. -- AFP