The above-expected contraction comes after an revised 1.1 per cent drop in the June quarter, meeting the widely-accepted definition of a recession.
Combined, NZ has just suffered its worst six-month economic result - outside of the pandemic - in more than three decades.
Westpac senior economist Michael Gordon said the result, released by Stats NZ on Thursday was "much weaker than expected" given a consensus view of a 0.4 per cent fall.
"There appears to have been a sharp downward lurch in activity over the last two quarters," he said.
"Together, that implies the steepest two-quarter decline in GDP since the 1991 recession (setting aside the COVID lockdown periods)."Â
The result is also the eighth-straight quarter that GDP per capita declined, marking two years of a recessionary environment.
Stats NZ reported declining activity in 11 of the 16 industries that make up the production measure of GDP.
The largest falls were in manufacturing, business services, and construction.
Construction was down 2.8 per cent in Q3 2024, electricity was down 3.7 per cent, mining was down 2.2 per cent and government and healthcare spending were also below forecast.
The conservative coalition, which took office in November 2023, has run an tough-as-nails fiscal strategy during a downturn, cutting the size of government.
While a more orthodox approach would be to bolster public spending to help the country through the downturn, it has argued its more important task is to cut rampant inflation, which was at 5.6 per cent when it took office, and but is currently 2.2 per cent.
The opposition said the government's public sector cuts were adding to NZ's economic woes.
"Nicola' Willis' cuts and austerity has fed the recessionary fire, and today's GDP figures show this," Labour finance spokesperson Barbara Edmonds said.
Regulation Minister and leader of the free-market ACT Party David Seymour said the shocker GDP result, which followed a downgrading of the budget bottom line earlier this week, was all Labour's doing.
"Just as we saw earlier this week in the government books, the full impact of Labour's economic destruction wasn't properly reported," he said.
"But ACT was ringing alarm bells over Labour's spending binge throughout the previous term, and the resulting recession is a vindication of what we've aways said."
The upside of the economic gloom is sharp relief for mortgage-holders with drastic cuts to the country's official cash rate (OCR).
The central bank's key rate was at 5.5 per cent in August but has been cut to 4.25 per cent already, with expectations of another 50 basis point cut in February before settling to 3.25 per cent - or lower - by mid-2025.
Kim Mundy, ASB senior economist, noted the primary sector as "the bright spot in Q3".
"Agricultural, forestry and fishing production rose 1.4 per cent qoq, largely in line with expectations ... driven largely by dairy cattle farming as well as horticulture and fruit growing," she said.
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