The Treasury expects the economy to grow solidly this year, though that will be partly curbed by the impact of the drought.
In its latest set of monthly economic indicators, the department noted both business and consumer confidence rose, while tax revenue has exceeded forecasts.
However, Treasury is initially estimating the drought could knock about 0.7% off growth this year, though it could be up to 1% of gross domestic product.
A weak labour market has dragged on growth, but the department expects firms to hire more people as the recovery strengthens further, particularly in Canterbury with the pace of rebuilding work picking up.