Confidence levels are high and surveys say employers are going to hire people, and consumers will spend on household goods and purchase capital equipment.
But when it comes to putting a hand in a pocket to get out money, or going to the bank to borrow it, New Zealanders are baulking.
BNZ chief economist Tony Alexander yesterday said he could only speculate on why people and businesses were holding off spending and because of that he could only make vague references to the time when he expected spending to increase.
For consumers, it seemed logical to talk in terms of people waiting for the labour market to improve.
"We expect that to happen later this year, although there is some increase in labour demand apparent at the moment, going by the anecdotes we pick up in our monthly survey and the numerous other monthly or quarterly figures put out by bodies in the employment field."
However, in Australia, although the labour market was strong, with the unemployment rate at just 5.3%, consumers were only slightly less cautious then they were on this side of the Tasman, he said.
In February, nominal New Zealand retail spending was 2.4% ahead of a year ago. In Australia, the rise was bigger but not spectacularly stronger at 3.4%.
More than the labour market was in play and even when it improved, it was not guaranteed New Zealand retail spending would show firm growth, Mr Alexander said.
"Consumers appear focused on repaying debt and if this was truly the factor restraining higher household spending, then it becomes very difficult to tell when the spending will appreciably rise. That is because we cannot be certain when debt aversion will pass, a key factor which will make this coming period of monetary tightening for the Reserve Bank an interesting, possibly stop-start affair."
The upshot of the uncertainty, without even taking into account business sensitivity to rising borrowing costs, which could be high, was that predictability of yield-curve movements was very low now and likely to remain that way.
If the tightening cycle started as predicted in June, then interest rates would rise soon after.
At 5.59%, the BNZ total money floating rate was appreciably lower than the three-year rate of 7.5%, two-year rate of 7.1% and even the one-year rate of 6.25%.
If nothing changed, the floating rate would reach the one-year fixed rate in the middle of September then sit above it for the remaining nine months of the one-year term.
Mr Alexander said if he was borrowing, he would only think about floating rates or terms out to three years at the longest.
Mr Alexander would put the term deposit portion of his portfolio away for five years and earn 6.75% , or keep it short with a 180-day term at 4.9%.
"If I keep it short, then in six months' time I will need a four-and-a-half-year rate of 6.95% to leave me in the same position as taking the five-year rate now.
"Given we expect the Reserve Bank's tightening of monetary policy will lift both short and long-term rates, and given that there is upside risk to long rates associated with the worsening government debt crisis in Europe, I would be inclined to take the six-month rate on offer and in six months' time do another calculation comparing what will be a higher six-month rate then with the five-year or thereabouts rate,"he said.
