Gross domestic product increased 1 percent from the third quarter, when it gained 0.5 percent, Statistics New Zealand said in Wellington today. From a year earlier, the economy expanded 3.7 percent.
The fastest annual growth since mid-2004 justifies Reserve Bank Governor Alan Bollard's decision to leave interest rates at a record-high 8.25 percent to combat inflation in the $104 billion economy. Economists say growth will slow as the property market cools and a drought cuts farm production, raising the prospect borrowing costs could be reduced in the second half of the year.
New Zealand's dollar rose to 80.47 U.S. cents at 10:51 a.m. in Wellington from 80.23 cents immediately before the report was released.
Bollard forecast this month that economic growth will slow to 2 percent in 2008. The average estimate of 11 economists surveyed by the New Zealand Institute of Research is 1.7 percent.
Consumer confidence slumped to a 10-year low in the first quarter, according to a survey published on March 26 by Westpac Banking Corp. and McDermott Miller Ltd. Finance Minister Michael Cullen last week said he couldn't rule out the possibility the economy may slip into a recession.
Economic growth in the fourth quarter was stoked by commercial building, dairy exports and production from the Tui oil field, which began in late July.
Overseas shipments of goods and services rose 5.4 percent in the quarter, led by dairy products and oil, the statistics agency said. Imports volumes rose 4.3 percent.
Household spending, which makes up 60 percent of the economy, rose 0.5 percent from the third quarter, when it gained 0.4 percent. Spending on alcohol, food and other so-called non-durable goods fell 1.4 percent. Purchases durable items rose 1.5 percent, led mostly by clothing and recreation goods.
New Zealanders are cutting back on purchases of cars, computers and appliances as they pay higher interest costs on their mortgages and credit cards. The lending rate on a two-year fixed home loan was 9.5 percent in January compared with 8.2 percent a year earlier.