Signs of a "shallow" and "fragile" economic recovery for 2010 are beginning to appear, but the question for analysts and the Reserve Bank is whether the recovery is sustainable and permanent.
Since going into recession in early 2008, worsening unemployment figures and the stubbornly high New Zealand dollar are impeding recovery, but other positive economic indicators are giving cause for some optimism.
Business confidence and own-activity surveys are respectively at seven-year and near five-year highs, in data released yesterday from the National Bank's monthly business outlook, which was followed by a separate preview of quarterly predictions due from the New Zealand Institute of Economic Research (NZIER).
Reserve Bank governor Alan Bollard said the central bank wanted to avoid a return to the debt-fuelled consumption and house buying which saw households live beyond their means before the financial crisis.
"The New Zealand economy is recovering, and for us really, it's not just the size of the recovery, it's the quality we'll be concerned about," NZPA reported yesterday.
The Reserve Bank is due to release its next official cash rate (OCR) announcement on Thursday next week.
All but one of 16 analysts polled by news agency Reuters believed the bank would hold the interest-driving OCR at 2.5% - a record low since cuts totalling 5.75% were initiated from mid-2008.
The NZIER's principal economist, Shamubeel Eaqub, said he expected the New Zealand economy to begin growing again from the December quarter, describing it as being "on the cusp of a fragile recovery".
"This will see economic growth of 3% in the year to March 2011, after a 1.8% contraction in the March 2010 year," he said in a statement yesterday.
Growth would come from a return in confidence, rising consumer demand and firms restocking their depleted inventories.
"Significant monetary and fiscal stimulus combined with migration-led population growth means the economy is set to bounce from very weak levels," he said.
However, he cautioned, "times will remain tough" for households, with the unemployment rate set to climb to about 8% in late-2010; major imbalances in house prices and household debt persisted and interest rates were rising.
"The speed and sustainability of the upturn remain uncertain," he said.
A "sustainable course" would be a "shallow recovery path" accompanied by a rise in savings, reduced borrowing and a strengthening of exports.
"The less desirable alternative may be surging short-term growth followed by another recession," he said.
National Bank chief economist Cameron Bagrie said August businesses' own-activity expectations, a key indicator of the survey, flagged 3% growth, with 25% expecting better times ahead - an almost five-year high.
"Profit expectations are back in the black, although only marginally so," he said in a statement.
He cautioned that the economy had clear challenges ahead, such as the current account deficit, household savings rates and rising unemployment.
"While we respect the improving trend across an array of economic barometers, question marks will continue to surround the sustainability."
He said overall business confidence had surged again in August, for the third consecutive month, rising from 18.7% in July to 34.2% in August, underpinned by the construction sector expecting better times, at levels similar to those in the early 1990s.
