Wellington  - The New Zealand economy, which is officially in the fifth consecutive quarter of recession, is showing the first signs of recovery, Westpac bank chief economist Brendan O'Donovan said on Tuesday.

"The economy is turning the corner after 18 months of misery," he said. "Times are still very tough, but if it were not for the threat of swine flu, we would say that the recession has already ended."

The economy is expected to contract 2.1 per cent this year, before expanding 2.6 per cent in 2010, according to Westpac's latest economic overview, O'Donovan said.

A surge in net migration, due to fewer New Zealanders leaving and more coming home, is set to drag New Zealand out of recession in what Westpac calls a "people-led recovery."

O'Donovan said the residential construction industry would be first to benefit from the influx of people, with rapid growth next year. Home-owners would be happy to see the end of declining house prices and retailers could expect more economic activity.

An upturn was revealed Monday with the release of official figures showing retail spending increased by 0.8 per cent in May over the previous month - the biggest monthly growth in 20 months.

But at the same time, a government minister disclosed that unemployment was rising sharply, with 1,200 workers a week now joining the dole queue as small and medium-sized businesses, which traditionally suffer a downturn in the winter months, laid off staff.

The official unemployment rate of people seeking work, but not necessarily applying for unemployment benefits, is 5 per cent, according to Statistics New Zealand, which estimated the number of jobless at 114,000 at March 31, more than 34 per cent higher than a year earlier.

Analysts have predicted that the unemployment rate will top 7 per cent next year.

Dairy farming, the country's biggest export industry, remains in the doldrums with the Real Estate Institute saying that the median price of dairy farms had slumped by more than 25 per cent in the last year to 3 million New Zealand dollars (1.9 million US dollars). (dpa)