Unemployment was expected to hit 9.5 per cent but now is not expected to go that high.
A slight bounce in the economy is brightening the outlook as the country heads into the winter months and anticipates alert level 1.
Retail spending is up and New Zealand shares rose for a third day yesterday.
Key indicators have led some economists to point to a faster recovery than expected.
However, Westpac chief economist Dominick Stephens said he wanted to make it clear that we were still heading for a big recession.
"Most people's personal experience of it is going to get worse from here, that is absolutely clear. The unemployment rate is going to rise, business is going to get tougher, there are going to be more layoffs.
"However, recent data is suggesting that when we compare that to the forecast we put together at the outset ... it's not looking quite as severe as those earlier forecasts."
He said one of the main reasons for that was because the country had been so effective in managing Covid-19 and the lockdown period had been shorter than predicted.
Stephens had earlier predicted the unemployment rate would hit 9.5 per cent at its peak, but now says it looks like it won't go that high.
Kiwibank senior economist Jeremy Couchman agreed.
He said spending levels had rebounded with each drop in alert level and some businesses were trading at pre-Covid levels.
"That's quite surprising and, given we are likely to go to level 1, we might get further rebounds in that kind of spending, so that's certainly encouraging."
Stephens said the lack of international tourism would be devastating to the tourism industry.
"When the wage subsidy scheme rolls off, you're going to see a further wave of redundancies and more people on the jobseeker benefit."
Craig Hudson, managing director of accountancy software firm Xero, said the hard data from small businesses in lockdown was "quite confronting".
Hudson said he was holding out hope that New Zealand was in a better place before the wage subsidy scheme ended.
"I'm hoping we will be supporting small businesses like we've never supported them before," he said.
Rod Duke, managing director of the Briscoes Group which owns Rebel Sport, Living and Giving, and Briscoes, said stores had experienced a significant rebound, but that it would not last.
Duke said the wage subsidy had been "very significant" for Briscoes Group and they had not had to make any workers redundant.
He hoped that when the subsidy ended they would be back on their feet and able to support themselves.
"We don't expect any redundancies but when the crunch comes, and it will, we're just hopeful it won't be quite as catastrophic as the complete shutdown for seven weeks was."
Duke said the Briscoes Group would like to stock more New Zealand made products but there was a lack of manufacturing in sportswear and home appliance products that held them back.
"It's a wonderful thought, but setting up a full manufacturing facility and being able to put it in the market economically - New Zealanders have been value-conscious for a very long time, and the price differences between a locally made product and an imported product, even from somewhere like the UK or Germany, is still going to be substantial."
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