The long-awaited Christchurch rebuild and a pickup in Auckland housing construction are set to propel the New Zealand economy forward into next year, helping offset a slowdown in export earnings due to the European crisis.

That's the view emerging from ASB Institutional's latest quarterly economy forecast, which found the time is right for the country's moribund building sector to kick back into life.

The factors include tight housing supply - particularly in Auckland and quake-hit Christchurch - and a growing demand for houses across the country shown by the recent uptick in prices.

That's helped by low interest rates. ASB sees the low cost of money spurring New Zealanders' appetite for debt, which has remained at depressed levels for a several years as households deleveraged through the global financial crisis.

"Over the next couple of years New Zealand's growth will be driven increasingly by domestic demand while export incomes lose some of their gloss," ASB chief economist Nick Tuffley said.

The positive spinoff effects from the Canterbury rebuild are seen in lifting employment levels, with the jobless rate expected to drop below 6 per cent by the end of next year - albeit predominantly in the South Island.

The country doesn't have it all one way in ASB's view, though, with the euro zone debt crisis expected to dent demand for New Zealand-produced commodities and export incomes.

ASB predicts this will widen the current account deficit to about 7 per cent of GDP by the middle of next year.

Most economists consider 5 per cent the upper threshold before ratings agencies become concerned. Commodity returns will also be hurt by the strength of the kiwi dollar, which the bank sees remaining at an elevated level for the remainder of the year.

"At present, though, the outlook for New Zealand's main trading partners remains near the long-term average - but it is increasingly reliant on Asia to keep performing," Tuffley said.

"Asia, in contrast to many developed economies, has the means for economic stimulus and the willingness to do it."

ASB is also betting the Reserve Bank will start lifting the official cash rate next March, peaking at 4 per cent by mid-2014 as it tries to support growth while controlling the inflationary impact from the rebuild.

- © Fairfax NZ News