KEY POINTS:
The economy grew 0.8 per cent in the last quarter of last year, its strongest increase for 18 months.
The increase pushes the annual growth rate to 1.5 per cent from 1.4 per cent in September.
The expansion was below economists' median forecast of 1 per cent, but
not so much weaker as to alter views of the economy or the outlook for interest rates, said ASB Bank chief economist Nick Tuffley.
"From the Reserve Bank's perspective, overall growth is near its expectations and will not add to its already considerable inflation concerns."
The figure confirmed the economy had rebounded from the effects of rising fuel prices on spending and confidence in the middle of last year.
What happened to interest rates depended on how strongly this new-found momentum was maintained, Tuffley said.
When Reserve Bank Governor Alan Bollard raised the official cash rate from 7.25 per cent to 7.5 per cent at the beginning of the month he cited a "clear evidence of a pick-up in economic activity in late 2006".
The December quarter had a 1.1 per cent increase in private consumption, the strongest performance since June 2005, and a 2.3 per cent increase in residential building.
Tuffley said the Reserve Bank's forecasts implied it had expected to see growth of about 1 per cent in private consumption and 3 per cent in residential investment in the December quarter.
"Its concerns about booming domestic demand will not have been inflamed by the latest release."
The financial markets see a 46 per cent probability that the bank will raise the OCR rate again on April 26, according to Credit Suisse's swaps-based indicator.
But ANZ National chief economist Cameron Bagrie believes recent rises in mortgage rates, if sustained, will give Bollard some comfort that housing-related activity will slow.
Credit growth figures for February, however, show scant evidence of that. Housing lending rose 14.2 per cent to $140 billion in the year ended February, up from a 13.9 per cent annual increase in January.
Deutsche Bank chief economist Darren Gibbs said that if the Reserve Bank was serious about bringing about greater balance in the economy, it would raise the OCR again.
The December GDP figures showed business investment grew 1.4 per cent, driven by a 7.5 per cent rise in investment in plant, machinery and equipment.
But net exports were a drag on growth, with a decline in export volumes and increase in imports.
The services sector, which makes up about two-thirds of economic activity, grew 0.9 per cent in the quarter.
But manufacturing value-added shrank 0.6 per cent. It has grown only once in the past nine quarters.
The primary sector by contrast had a good quarter, growing 2.4 per cent, led by dairying, logging and mining.
Growth spurt
* Economic growth picked up in the December quarter.
* Household spending was the strongest it has been since mid-2005.
* If that continues another interest rate rise could be on the cards.
