The NZ dollar jumped to US80.48 this morning on the news interest rates are likely to remain high. Photo / Kenny Rodger

The NZ dollar jumped to US80.48 this morning on the news interest rates are likely to remain high. Photo / Kenny Rodger

The New Zealand economy ended 2007 strongly, but the December quarter surge is widely expected to be the last hurrah for some time.

Figures published by Statistics New Zealand today show Gross Domestic Product grew 1 per cent in the December 2007 quarter, taking growth for the year to 3.1 per cent - the fastest annual rate for 2-1/2 years.

ANZ bank said quarterly strength was mainly across the board with primary production, manufacturing, and finance and business services making strong contributions to growth.

Despite that, there was no doubt growth was undershooting the Reserve Bank's expectations for 2008, but a stronger opening position meant the hurdle to lower interest rates remained high.

The key was whether any slowdown in growth was temporary or more sustained.

"Unlike late 2005 and early 2006, this slowdown is coinciding with a global event, the equity market is tracking the real economy, and housing is adjusting rapidly lower on the prices front," ANZ said.

It pointed to exports as a standout performer in December quarter economic activity, with primary exports up 9.4 per cent, driven by dairy.

But much of that growth had come from existing inventories, leading to inventories subtracting 0.9 percentage points off growth in the quarter.

That rundown should be put in the context of the build-up seen in the previous two quarters, ANZ said.

Strong business investment was positive given the poor productivity performance of recent years.

Increases included 16.4 per cent in non-residential buildings, with a 4 per cent rise in plant, machinery and transport, and a 10.2 per cent rise in intangible assets. The latter was due to increased exploration activity.

At the same time quarterly growth in private and public consumption was subdued, at 0.5 per cent and 0.4 per cent respectively, while residential investment declined 1.6 per cent, ANZ said.

ASB also expected this year to be markedly slower, with provisional forecasts of 0.3 per cent growth in the first quarter and a 0.1 per cent decrease in the second.

Barring spillover from the global credit crisis, it expected the Reserve Bank to keep the official cash rate on hold this year because of concerns about inflation.