The New Zealand economy probably continued to pick up pace in the first quarter, reflecting record milk production and increased livestock sent for slaughter, affirming the nation remains on a modest recovery track.

Gross domestic product grew 0.5 per cent in the first three months of the year, based on a Reuters survey of 13 economists. That would continue the mild pick-up in growth after GDP rose 0.2 per cent and 0.3 per cent respectively in the final two quarters of 2011.

A 0.5 per cent pace would exceed the central bank's latest estimate, released last week, of 0.4 per cent for the first quarter, a rate it expects continued through the second quarter. The Reserve Bank kept its official cash rate unchanged at 2.5 per cent in the June 14 Monetary Policy Statement and pushed out the track for future increases, while showing it doesn't share the Treasury's view of a return to fiscal surplus by 2015.

All the state agencies are grappling with volatile numbers in making their economic forecasts. Statistics New Zealand revised its quarterly retail sales data to a smaller decline of 0.6 per cent. On the strength of the revisions, some economists revised their GDP numbers.


"While the global backdrop presents downside risk to NZ's economic outlook and the absolute rate of activity growth is still subdued, we forecast this sequential improvement in growth momentum to continue gradually over 2012," Philip Borkin, economist at Goldman Sachs, said in a report.

Borkin lifted his quarterly forecast for GDP to the survey average 0.5 per cent from 0.3 per cent.

Christina Leung, economist at ASB, sees 0.6 per cent growth in the quarter.

"A large part of this reflects an increase in milk production and livestock slaughter, which we expect will have boosted agriculture and food manufacturing production over Q1," Leung says. Growth of 0.6 per cent was "modest" as it will remain over the coming months.

The Reserve Bank's revised forecasts are for a weaker track of GDP growth in the first half of 2012 from what it was picking in the March MPS. The cycle peaks a quarter late with March 2013 GDP forecast at 0.9 per cent versus the March estimate of growth peaking at of 1 per cent stating in December this year.

"The resulting moderation in export incomes, although partially offset by depreciation in the exchange rate, will weigh on economic activity in New Zealand," Bollard said last week.

The central bank expects housing market activity, spurred by lower interest rates, and rebuilding in Canterbury will lift construction activity in coming quarters.

In the first three months of the year, the value of residential building work put in place fell about 1.5 per cent to $1.35 billion, government figures show. Non-residential construction rose 1.8 per cent to $1.15 billion. That left the overall value of work put in place unchanged at $2.5 billion.

Traders have almost given up their bets that Bollard will cut the official cash rate any time soon. Some 12 basis points of cuts are priced into the Overnight Index Swap curve for the next 12 months. That's up from almost 50 basis points of cuts to the official cash rate seen in early June.