However, while the drought's initial impact during the first half of 2013 might have been more negative than initially thought, it appeared effects during the second season might not be as bad as first feared, at least on average across the country, BNZ's economist Doug Steel said in his monthly rural wrap on agriculture.
''No doubt the mildest winter on record has helped.
''Very strong dairy prices and an improving outlook for sheep and beef prices are promising better per-unit returns this season,'' Mr Steel said.
In beef and sheep numbers, at least, the South Island appeared to have fared better than the North Island.
While agriculture sector optimism had returned, Mr Steel cautioned the production outlook ''differs markedly'' across the major sectors, with dairying underpinning growth with its $4 billion increase in earnings.
''Drought was always going to be a drag on economic growth,'' he said.
Sheepmeat production during 2013-14 is expected to be down, beef relatively flat and lambing could produce the lowest crop since 1955, but milk production was forecast to bounce back strongly, he said.
''Beef and Lamb New Zealand's recently released stock number survey reflects the ongoing negative effects of the early-2013 drought on dry stock farming,'' Mr Steel said.
New Zealand sheep numbers were estimated down 1% on the previous year at 30.94 million, at the end of June 2013.
''The drought saw a 2.8% decline in North Island sheep numbers, while there was a 0.7% increase in the South Island. Overall, New Zealand sheep numbers are at their lowest since 1946,'' Mr Steel said.
Beef and Lamb's forecast for the 2013 lamb crop was for 24.4 million, about 2 million or 7.7% down on the previous season, he said.
''If confirmed after this year's lambing ... this would be the lowest New Zealand lamb crop since 1955,'' Mr Steel said.
For beef, cattle numbers were estimated 1.3% down on the previous year at 3.69 million, with a sharp regional contrast.
North Island numbers were down 2.5% while South Island numbers rose 1.8%; with calving expected to be similar to 2012.
''For dairy, milk production has started the new season firmly ahead of year-ago levels,'' Mr Steel said.
A mild winter and good grass cover was generating optimism as the season built towards its October peak.
Fonterra had raised its milk collection growth forecast, from 2% to 5%.
Very strong international dairy market conditions prevailed, despite some trade issues relating to the whey protein concentrate contamination scare, he said.
''It is these conditions that are promising a very large increase in dairy sector revenues this season,'' Mr Steel said.
Tight supply-firm demand conditions globally had prompted Fonterra to further raise its forecast milk price for the 2013-14 season to a record $7.80 per kilogram of milksolids.
''Other dairy companies have also upgraded payout forecasts,'' Mr Steel said.
The BNZ was estimating higher milk prices would result in
dairy revenue rising by more than $4 billion, compared with the previous season.
Mr Steel said strong growth elsewhere, such as the construction sector and the non-food manufacturing and distribution sectors, would have kept overall economic growth rates positive.
However, there had been big declines in food processing, wholesale trade sales and export volumes.
''Collectively, these were a little more negative than we had initially pencilled in,'' he said.