Westpac has revised up its New Zealand growth forecast for 2014 to 4.2 per cent from its previous forecast of 3.8 per cent, based on the country's high terms of trade performance.
The bank, in its latest economic overview, said it expects the New Zealand dollar to remain above US80c against the US dollar and above A90c against the Aussie dollar until the end of 2015, also thanks to the terms of trade.
The terms of trade index, which measures changes in the price of exports relative to the cost of imports, rose by 7.5 per cent in the September quarter to a level not seen since December, 1973.
Westpac said the post-earthquake Canterbury rebuild proved a substantial boost to gross domestic product (GDP) in 2013 but the high exchange rate suppressed inflation and forced the Reserve Bank to keep interest rates low.
Low interest rates had the side-effect of provoking double-digit house price inflation, which in turn stimulated consumer spending, the bank's chief economist Dominick Stephens said.