New Zealand economy grows at fastest quarterly rate in two years

  • New Zealand's gross domestic product grew 1 percent in the three months to the end of June, double the pace of the previous quarter, according to the latest statistics on Thursday.
  • The Reserve Bank of New Zealand central bank had expressed concerns over mounting business pessimism, which had hit at its worst levels in a decade.
  • The central bank will announce its next monetary policy decision on September 27.
Workers stand near a crane at a construction site in front of the Sky Tower in Auckland, New Zealand, on Friday, Dec. 9, 2016.
Brendon O'Hagan | Bloomberg | Getty Images
Workers stand near a crane at a construction site in front of the Sky Tower in Auckland, New Zealand, on Friday, Dec. 9, 2016.

New Zealand's economy expanded at the fastest pace in two years last quarter as farm exports and consumer spending surged, a surprisingly strong result that suggests there is no need for a cut in interest rates.

Statistics New Zealand figures out on Thursday showed gross domestic product grew 1 percent in the three months to the end of June, double the pace of the previous quarter.

That easily beat market expectations of 0.7 percent, and the Reserve Bank of New Zealand forecast of 0.5 percent.

The New Zealand dollar jumped half a U.S. cent to a three-week high of $0.6652, though it later pared its gains slightly to trade around $0.6643.

Annual growth was 2.8 percent, again outpacing analysts' forecasts of 2.5 percent.

"The Q2 outcome is a significant positive surprise for the RBNZ," said Nick Tuffley, chief economist at ASB Bank.

"Q2 GDP reinforces that the momentum in the economy was relatively robust over the first half of the year despite some of the negative headlines and weak business confidence."

The RBNZ had expressed concerns over mounting business pessimism, which had hit at its worst levels in a decade.

Governor Adrian Orr signaled in August that the RBNZ would consider a rate cut if gloomy business sentiment hampered investment and led to growth missing forecasts in coming quarters.

"We still believe that the combination of low confidence, a subdued housing market and easing net migration will result in growth slowing further next year rather than accelerating as the RBNZ hopes," said Paul Dales, chief Australia and New Zealand economist at Capital Economics.

Gains in the second quarter were broad-based but led by agriculture as the dairy industry bounced back with gusto from bad weather that had hampered production.

That helped propel growth in agriculture to 4.2 percent, the sector's largest gain in almost four years.

The RBNZ will announce its next monetary policy decision on September 27.