Gross domestic product (GDP) increased 0.6% in the three months ended March, the fourth consecutive increase in GDP, which measures all economic activity of a country.
However, annual average growth for the full March 2010 year was still down, at -0.4%.
Driving much of the improvement in the first quarter was a robust recovery in non-food manufacturing, forestry and mining activity, construction and wholesale trade.
ASB economist Jane Turner said the strength in those particular sectors reinforced the view that underlying momentum within the core productive sector continued to improve.
Dairy production managed to increase in the quarter, despite the impact of drought conditions.
But while growth in the core production industries was solid, a few pockets of weakness remained, she said.
As expected, the sectors exposed to the housing market lost ground as housing market activity remained subdued, amid uncertainty on property tax before the May Budget.
Industries exposed to consumer sentiment were also subdued.
"Households have remained cautious in the early stages of the economic recovery."
There were some encouraging signs, with consumer spending starting to improve, Ms Turner said.
Finance Minister Bill English said four successive quarters of growth was a welcome sign but more work was needed to ensure the rebound in jobs and growth was sustainable.
"A growing economy is the only way to create new jobs and raise New Zealanders' living standards."
The economy faced serious challenges. The Government need to continue tilting the economy towards savings, exports and productive industries, he said.
While the global outlook had strengthened in the past year, it remained fragile, as could be seen from the sovereign debt crisis in Europe.
"This reinforces the need for continuing restraint in government spending and curbing the significant increase in New Zealand's debt to the rest of the world," he said.
Ms Turner said GDP was weaker than expected by the Reserve Bank, but she expected the central bank to focus on the underlying improvement evident with the details of yesterday's report.
Business confidence remained strong and she expected business investment would continue to improve.
ASB expected the Reserve Bank to lift the official cash rate by 0.25% to 3% in July.
