WELLINGTON, New Zealand (AP) -- Economic activity contracted in New Zealand in the first three months of the year compared with the previous quarter as domestic demand softened, a bank survey showed Wednesday, further raising the risk of a recession this year.

The National Bank of New Zealand said its regional trends survey showed nationwide economic activity contracted 0.6 percent in the three months to March 31 compared with the fourth quarter of 2008. The economy expanded 0.6 percent in that previous quarter.

The contraction in the most recent quarter was the largest quarterly decline since the second quarter of 2005.

The survey adds to a raft of recent data pointing to an economy grinding to a halt after years of above-trend growth, mainly driven by a housing boom.

"Weaker regional economic indicators were widespread in the March quarter and included: business and consumer confidence, retail trade, employment, house sales, new motor vehicle registrations and building consents," the bank said in a statement.

Nine of the 14 regions surveyed reported a decline in economic activity. North Island contracted 0.7 percent and South Island shrank 0.3 percent compared with the previous quarter.

The survey result underscores a rapid downturn in the economy this year with consumer spending stalling and business investment pulling back as a string of interest rate hikes take their toll.

The country's official cash rate has sat at 8.25 percent since July 2007 after the central bank delivered four consecutive rate hikes that year.

High mortgage rates dented the housing market, which continues to slow rapidly, while household budgets have been squeezed by rising food and oil prices.

The Reserve Bank is widely expected to start cutting interest rates before the end of this year, with market consensus tipping September for the start of its easing cycle.