Economic data released yesterday show business confidence was rising and growing export receipts had created the first trade surplus for the year ended January since 2002, but all this was undone by the earthquake.
A National Bank survey of business confidence before the disaster showed 35% of businesses expected better times ahead, up five percentage points on December, with agriculture the key driver of that forecast lift.
A net 27% expected to raise prices in the coming year and inflation was expected to be between 2.8% and 3%.
National Bank and ANZ Bank chief economist Cameron Bagrie said the composite growth indicator pointed to growth of 4% for the year.
He said the mixed economic news now meant the New Zealand dollar was being torn between the economic pressures of the earthquake and the ongoing improvement in the country's terms of trade.
It was widely expected the dollar would fall sharply after the earthquake, but yesterday it firmed slightly against our main trading partners.
It slipped by up to 2.4% against the United States dollar in the last week, but has recovered from a low of US74.81c to close trade yesterday at US75.09c.
Economists believe the dollar will eventually fall in line with weaker economic growth, but BNZ's Kymberley Martin said it was unlikely to "fall out of bed completely".
Mr Bagrie said improving terms of trade and rising global food prices would underpin the dollar.
But there is general acceptance the economic impact of the earthquake will be felt immediately and for some time in the future.
The New Zealand Institute of Economic Research (NZIER) yesterday cut its forecast growth for 2011 from 2.3% to 0.3%, the ANZ expects the economy to shrink in the first half of this year and the BNZ has cut 1.5% off expected growth this year.
There are mixed opinions on whether the Reserve Bank will cut the official cash rate later this month, with the NZIER and BNZ saying a cut would be of little benefit for earthquake recovery, but the ANZ and ASB are both picking a cut of up to 50 basis points.
Mr Bagrie said with businesses and the Government co-ordinating their response, it was difficult for the Reserve Bank not to also act, while ASB economist Jane Turner said markets had already factored in a 30-basis-point cut.
Craigs Investment Partners adviser Chris Timms said he expected the value of the New Zealand dollar to fall as a result of the earthquake, but it has remained steady at pre-quake levels.
He said yesterday it strengthened slightly against the Australian dollar, United Kingdom pound, US dollar and euro.
He said strong commodity exports were compensating for weakness in the US, reinforced by data released yesterday by Statistics New Zealand that revealed a trade surplus of $865 million, or 2% of exports, the first surplus for the year ended January since 2002.
Mr Timms said immediately after the earthquake it was a question of when, not if, the Reserve Bank would cut interest rates and help the economy through monetary policy, but that was now seen as an over-reaction.
Now the talk is of a fiscal response, which the Government has implemented by providing a six-week earthquake support package that includes a subsidy to help Christchurch employers pay wages and job loss cover for employees who may not have a job to go back to.
"I suspect we won't see a change to the official cash rate," he said.
