New Zealand's economy expanded at its fastest annual rate in more than six years during the first quarter driven by a surge in construction, bolstering the case for another interest rate rise next month to curb growing price risks.
The economy grew a seasonally adjusted 3.8 percent in January-March from a year ago, Statistics New Zealand figures showed on Thursday, its best pace since the September 2007 quarter and slightly exceeding economists' forecasts for a 3.7 percent rise.
Driving the NZ$226 billion ($195.7 billion) economy at the start of the year was a 12.5 percent pick-up in construction activity, the biggest quarter rise since March 2000.
This helped spur a 1.0 percent expansion for the quarter, unchanged from the December quarter, but below an expected 1.2 percent rise.
The figures indicated the small South Pacific nation's economy outperforming most developed economies, and will keep pressure on the Reserve Bank of New Zealand to raise rates to 3.5 percent next month.
"They pretty much hinted if events keep on track they'll be hiking in July, and this suggests things are in track with their view, so we expect a hike in July and pause until December," said ASB Bank chief economist Nick Tuffley.
The New Zealand dollar softened in response to the weaker-than-expected quarterly rise, easing to a low of $0.8310 from $0.8324 before the data.
New Zealand's economy has continued to pick up the pace in recent quarters thanks to the ongoing Canterbury earthquake rebuild projects. Record-high exports of dairy products, the country's biggest export earner, has also boosted terms of trade to their highest in around 40 years.
To quell rising inflation pressure stemming from an outperforming economy, the RBNZ in March became the first developed central bank to raise interest rates in the current cycle, and is expected to raise rates gradually through late 2015.
It raised rates to a five-year high of 3.25 percent earlier this month, and 10 out of 15 economists in a Reuters poll expect the RBNZ to hike again next month, which would be its fourth tightening in as many rate reviews.