New Zealand is finally emerging from its five-quarter long recession, the beneficiary of strong domestic and global policy stimulus. Recent indicators, notably improving business production expectations and retail sales, suggest that the third quarter is on track to register modest positive growth. But the recovery could be hampered by the overhang of high private sector indebtedness, ongoing credit contraction, the currency’s recent strength and rising unemployment. Unemployment is rising markedly and, as a lagging indicator, will continue to do so. This may hold down incomes and, along with the need to unwind the burden of household debt, raise the propensity to save.