NZ economy grows at 3.3% annual rate in 1Q as construction posts largest increase in 14 years

New Zealand’s economy grew at a 3.3 percent annual rate in the first three months of the year, the fastest first-quarter pace in eight years, supporting the central bank’s view that it must press on with interest rate increases to keep inflation at bay.

The economy grew 1 percent pace in the first three months of the year, from an upwardly revised 1 percent gain in the fourth quarter, marking three quarters of growth at 1 percent or above, Statistics New Zealand said. Quarterly growth was below the 1.2 percent expected in a Reuters poll of economists although the annual rate beat the forecast for 3.1 percent.

New Zealand’s economic expansion in the latest quarter was helped by a 12.5 percent rise in construction, which accounted for two-thirds of GDP growth and marked its largest increase in 14 years. Last week, the Reserve Bank said the economy’s expansion had “considerable momentum” and raised its estimate for growth in the first half of the year to 4 percent from 3.5 percent.

The New Zealand dollar fell to 87.19 US cents from 87.34 cents immediately before the report was released. The trade-weighted index eased to 81.15 from 81.25.

Growth in construction was strong in Canterbury, and the rest of the country, the statistics agency said. Construction has surged in Christchurch as the city is being rebuilt following a series of earthquakes.

Mining was the second-largest contributor to growth in the quarter, up 6.3 percent, the agency said. The rise was driven by oil and gas extraction activity which marked its largest quarterly growth since the December 2007 quarter, it said.

Meantime, retail trade and accommodation increased 1.4 percent as retail trade rose 0.9 percent driven by an increase in furniture, electrical and hardware retailing.

Dragging on growth, wholesale trade activity fell 1.5 percent, partly due to a decrease in machinery and equipment wholesaling.