New Zealand's recession is over, but there appear to be plenty of headwinds in the form of rising unemployment and foreign exchange rate volatility to temper the improving outlook.
Nearly all the economic data released during the past fortnight has carried signs of positive movement, but most came with a highlighted "cautionary" disclaimer on the sustainability of growth.
Yesterday's data is a consensus of the average of several economic forecasts released by Peter O'Connor of the New Zealand Institute of Economic Research.
The country's recession, defined by at least two consecutive quarters of negative growth in gross domestic product, appears to have been shallower than expected, with the latest GDP forecasts revised up for the year to March from -1.6% to -0.4% and for the year ahead to early 2011, they are back in the black at +2.8%.
Mr O'Connor cautioned the forecast range from March next year to March 2011 was "unusually wide, from an anemic 1.8% to a robust 3.7%", leaving forecasters "uncertain".
"Despite an end to the recession, forecasters expect unemployment to remain high at 7%", until there is an improvement in March 2012 to 6.3%, Mr O'Connor said.
ASB senior economist Nick Tuffley said when contacted while there were signs of growing business and consumer confidence, that was yet to flow through to reflect an actual lift in recovery, which he predicted would be domestically driven.
The "big swing factors" were a combination of a "turnaround in residential construction" and rise in consumer spending, he said.
Mr O'Connor said the growth outlook for exports had improved, in line with a global recovery, but this was offset by expectations of a higher exchange rate.
"Forecasters are also split on the exchange rate outlook, with widely diverging views of reclaiming recent highs in coming years, to plumbing towards 2001 lows," Mr O'Connor said.
While exports would improve from -1.1% in the previous year to rise 0.7% in March 2010, Mr O'Connor said the forecasts for 2011 and 2012 had both been reduced, by about 0.75%, to 1.7% and 4.5% respectively because of the higher exchange outlook.
Mr O'Connor said the Reserve Bank's target inflation band of 1%-3% was likely to be met, with expectations of 2.1% and 2.3% in 2010 and 2011 respectively.
Both importers, who benefitted from a high exchange rate, and exporters faced uncertainty, Mr O'Connor said.
"There is clearly significant uncertainty in the future path of the New Zealand dollar," he said.
Statistics New Zealand GDP data is scheduled to be released next week.
