Robust global dairy prices and the gathering pace of the Christchurch rebuild are underpinning stronger economic activity.
The Treasury is forecasting growth of 2.5% in the year to March, the highest annual rate in five years, although it notes employment growth remains weak and unemployment persistently high.
The economy is expected to expand at an average of 2.5% a year over the next five years, supported by the rebuild, high dairy prices, low interest rates and higher spending by households and firms.
But the Treasury warns the high New Zealand dollar will constrain exporters and the recent drought will knock the farming sector.
It forecasts a pick-up in job creation, with unemployment to fall gradually to about 5% by 2017, while inflation is expected to remain subdued at 2% over the forecast period, the middle of the Reserve Bank's target band.
The current-account deficit, which is the difference between what the country earns and spends, is expected to rise to 6.5% of GDP in the next few years, driven by demand for imports to rebuild Christchurch, and increased profits for foreign-owned firms as the economy improves.
Businesses in the regions told Radio New Zealand the prospect of lower ACC levies flagged in the Budget is good but there are few other benefits for them.
Levies are forecast to drop by about $300 million in 2014-15, and $1 billion the following year.
