The New Zealand economy has been growing modestly but steadily, despite significant headwinds. The economy has expanded in nine of the past 10 quarters and a total of 60,000 more people are employed now than were employed two years ago.
This expansion in activity has been achieved in the face of weak world growth, the Canterbury earthquakes, a high New Zealand dollar and an increased level of household saving which is tempering economic growth in the short term.
Looking ahead, New Zealand faces a favourable set of circumstances and opportunities but is not immune from global risks.
The rebuilding of Christchurch will be a key driver of overall domestic activity and is expected to contribute around one percentage point to annual growth in each calendar year from 2012 to 2016.
Our two largest trading partners - Australia and China - are forecast to maintain reasonable growth rates, which will have a flow-on effect for New Zealand.
In addition, New Zealand's merchandise terms of trade is expected to remain at historically high levels, even as it eases back off recent peaks.
Despite this favourable outlook, the Treasury's latest economic forecasts show slightly weaker near-term growth than was presented in the 2012 Budget Policy Statement (BPS) earlier this year. This reflects weaker forecasts for growth amongst our trading partners, stemming mainly from the ongoing debt crisis in Europe.
Annual growth is now expected to be 2.6 per cent in the year to March 2013 and 3.4 per cent in the year to March 2014. However, the New Zealand economy is still expected to grow more strongly over the next two years than many other developed countries, including the United States, Canada, the United Kingdom, Japan, and the Euro area.
There are risks to these forecasts. Global growth could be weaker than expected, for example if European policymakers struggle to address the region's underlying debt challenges. Further seismic activity in the Canterbury region could also push reconstruction activity back further.