KEY POINTS:
The economy grew by an unexpectedly strong 1 per cent in the last three months of 2007, but that was then and this is now, economists said.
The increase in gross domestic product was better than the market consensus (0.8 per cent) or the Reserve Bank (0.7 per
cent) expected and pushed annual average growth to 3.1 per cent, its strongest for two-and-a-half years.
But the growth was concentrated in sectors that are expected to flatten off or go backwards.
For example, nearly a fifth of the quarter's growth was attributable to the Tui oil field. But UBS economist Robin Clements said Tui reached full production in the December quarter.
Likewise agriculture and manufacturing (which includes dairy processing) contributed 0.5 percentage points between them. But with much of the country afflicted by drought, Clements said that could be reversed to some degree in the March quarter.
Non-residential construction jumped 16.3 per cent. "It's unlikely to put on another leg-up like that again," said ASB chief economist Nick Tuffley. "At the same time it is clear households are coming under increased strain."
Tuffley said the key drivers of how the economy fared this year would be the drought, the extent of the housing market slowdown - which could turn out to be steeper than the 5 per cent fall the Reserve Bank anticipated - and the state of credit markets.
At this stage he is forecasting growth of 1.3 per cent this year.
Growth in private consumption was 0.5 per cent in the December quarter.
But First NZ capital economist Jason Wong said more timely data on consumer confidence (at a 10-year low), retail sales and electronic card transactions suggested consumer spending had been sluggish in the March quarter.
"Higher effective mortgage rates, falling house prices and a higher cost of living point to weak growth in consumer spending for the rest of the year," Wong said. "Tax cuts from October will be supportive but are required just to offset the impact of higher debt servicing costs."
Business investment jumped 6.2 per cent in the quarter, including 4 per cent growth in spending on plant and machinery. "But it's hard to see underlying strength in business investment continuing with such low business confidence, weak profitability and reduced access to credit," Wong said.