In a report released this morning, Mr Eaqub said the fallout from the European sovereign debt mess would depress export growth.
"It will weigh on exports and tourism which have been a buffer. Investment will remain depressed because banks will find it harder to raise capital overseas. The uncertainty around the global outlook is also weighing heavy on business and consumer confidence, and thus spending."
The New Zealand Institute of Economic Research's latest quarterly predictions include a political solution being found that prevented the euro zone from breaking up. If that happened, New Zealand economic growth would be just 1.5% in 2012, gradually rising to 2.5% by 2014.
Mr Eaqub said there was little domestic demand growth.
Households were saving, the housing market was struggling, businesses were cautious about investing and the Government was in a period of fiscal consolidation.
The rebuilding of Canterbury would provide a much-needed injection of building activity from mid-2013, but the speed of the recovery programme was not yet clear.
Faced with the darkening global outlook and weak domestic activity, the Reserve Bank would not raise the official cash rate until mid-2013, Mr Eaqub said.
Inflation would be contained as excess labour market capacity kept a lid on wage growth and firms held prices low to remain competitive.
"If the global situation worsens, the Reserve Bank will have to cut the OCR."
The slower recovery would dampen tax revenue, he said. A 2014-15 return to budget surplus projected by Treasury, before the global outlook deteriorated so rapidly, would be challenging. Government spending programmes would face further scrutiny, he said.
If the euro zone split, New Zealand firms should prepare for another global crisis. That would restrict access to capital and push up global borrowing costs, in addition to an even weaker export outlook.
New Zealand would likely experience another recession and the Reserve Bank would need to cut interest rates.
NZIER placed odds of 25% on that happening, Mr Eaqub said.
The British Government has slashed its growth outlook, blaming the impact of the euro zone debt crisis, and unveiled a 30 billion ($NZ61.6 billion) infrastructure scheme to help kick-start the economy.
Chancellor of the Exchequer George Osborne, in a statement to Parliament, insisted there would be no let-up in the coalition's plans to axe the deficit and steer clear of the global debt storm. Markets took the news in their stride as the contents of the statement had been widely previewed in the media.
