Gross domestic product (GDP) figures out on Thursday from Statistics New Zealand are expected to show growth was modest but that manufacturing and construction activity are set to join the recovery after bearing the brunt of the decline through the recession.
GDP is a measure of the output produced in an economy during a set period.
ASB economist Jane Turner said that although confidence improved in the December quarter, activity in business surveys was weak and a large degree of uncertainty remained.
"One feature of the near-term outlook is the inventory rebuilding phase.
"During the recession, weak demand triggered a sharp, broad based destocking process which was a drag on activity.
"This destocking process has now slowed and the restocking phase will provide a significant boost to activity."
There had been uncertainty on the timing of the process, but the ASB expected to see a strong contribution in the first quarter of this year, as there was little evidence of inventory rebuilding in December business surveys, she said.
Manufacturing was likely to have increased in December for the first time since December 2007, with a firm increase in demand recorded in the quarter.
Non-food related manufacturing stabilised in September and growth in the fourth quarter would be underpinned by recovering domestic demand and strong growth in Australia.
Many exporting manufacturers would be benefiting from the lower value of the New Zealand dollar against its Australian counterpart, Ms Turner said.
The improving competitiveness in the Australian market would continue to underpin growth in that sector.
"We expect the pace of recovery to move up a gear in 2010."
The inventory rebuilding cycle would have full effect in the three months ended March, residential construction would continue to recover over the first half of the year and manufacturing activity would continue to be supported by improving demand.
The retail trade was also expected to continue to recover, albeit at a subdued pace, Ms Turner said.
Mastercard Worldwide economic adviser Yuwa Hedrick-Wing said New Zealand's economy had been dynamic in the last decade and comparisons with Australia were misleading.
But he also believed New Zealand needed to invest more in the productive part of the economy, rather than in residential property, and harness the talent of a well-educated workforce to produce more high-end niche products.
"The proper comparison is with New Zealand's own previous decade, and from this perspective, the improvement is very impressive," he said in a report entitled Growth Prospects of Australia and New Zealand in the Post-Recovery Global Economy.
"I do not believe New Zealand competes with Australia.
"If anything, to the extent that Australia improves its services exports, especially in tourism, New Zealand improves," he said.
New Zealand's per capita income in 1990 was estimated at $US12,951.
By 2000, it was little changed at $US13,557, but by 2008 it had almost doubled to $US30,030.
"You really want to get out of the low productivity area, where the competition is intensifying," he said.
The report noted that experimentation with making milk powder for export in the small Manawatu town of Bunnythorpe from 1873 led to the formation of Glaxo Laboratories Ltd, which was now part of global company GlaxoSmithKline.
The story of entrepreneurial spirit demonstrated that a remote location and a small local market were not a deterrent to global success.
Mr Hedrick-Wing highlighted the service sector as a potential new growth engine.
"The future of both Australia and New Zealand lie in expanding the knowledge economy," he said.
"Investment in the service sector is perhaps the best position to leverage the information and knowledge economy to achieve greater success in the future."
China was an export market for New Zealand.
For the next decade, demand would stay high in China, but there were risks, as the inventory cycle had peaked in China and China was trying to slow its economy.
At a glance:
• GDP expected to increase by 0.5% in December quarter
• Manufacturing, retail and wholesale trade likely to have expanded in the quarter.
• Recovery to continue through 2010, supported by the inventory rebuilding process.
