The New Zealand economy grew at a faster-than-expected clip in the second quarter, driven by record milk production and increased building activity, while growth in the first quarter was trimmed back.

The kiwi dollar rose half a cent on the news.

Gross domestic product grew 0.6 per cent in the three months ended June 30, from a 1 per cent pace in the first three months of the year, a revision from the previously published 1.1 per cent, according to Statistics New Zealand. Growth of 0.3 per cent had been expected in the second quarter, according to a Reuters survey.

The economy tracked as the central bank expected in the second quarter, with growth matching the estimate in last week's monetary policy statement. The data has been subject to revisions because Statistics New Zealand has been overhauling its measures of GDP, in a staged change. As a result, GDP growth in the final two quarters of 2011 was revised up to 0.5 per cent apiece from 0.4 per cent.


The second quarter figures reflect a boom season for pasture growth that resulted in record production of milk, the basis of New Zealand's exports of dairy products. Added to that, the reconstruction of earthquake-damaged Christchurch is starting to stoke building activity.

"The good pasture conditions in the first half of the year continued to contribute to economic growth this quarter," the department's national accounts manager Rachael Milicich said. "We are also now seeing evidence of a rebuild in Canterbury following the earthquakes."

Westpac Bank economist Dominick Stephens said the data was stronger than markets expected.

"The rate of GDP growth was certainly stronger than the Reserve Bank was preparing for, so this surprise leans in the direction of higher interest rates. However, the impact on the Reserve Bank's attitude will be modest," said Stephens. "Most economists have long expected growth to accelerate as a consequence of the Christchurch rebuild, the RBNZ included. The real question is what happens to inflation following the stronger growth. "

So far, inflation had been "remarkably low", said Stephens. "It is also worth noting that these GDP figures are now somewhat dated - the tone of data relating to the September quarter has been slower."

Finance Minister Bill English issued a statement saying the stats showed "solid and broad-based growth" despite on-going challenges in many parts of the world.

The new annual GDP rate of 2.6 per cent was the highest rate since 2007, before the domestic recession and the Global Financial Crisis.

"New Zealand's economy continues to perform better than those of most other developed countries, despite uncertainties in Europe, the United States and suggestions that growth in China may come off its recent highs," said English.


"From the Government's perspective, we cannot influence these external events, which are having an impact on New Zealand.

"In the current environment, it's important that we continue with our wide-ranging economic programme to increase New Zealand's long-term competitiveness and give our businesses the best chance of succeeding.

English said the country was making good progress and the outlook was "for further moderate growth over the next three or four years".

"Today's result indicates the recovery in the NZ economy is gaining a firmer footing, with a large part of this reflecting the post-earthquake activity taking place in Canterbury," said ASB Bank economist Christina Leung.

"The surge in infrastructure and residential construction should give the Reserve Bank confidence that rebuilding is on track. Recent activity indicators point to a further pick-up in rebuilding over the coming year, and this should provide a continued boost to the NZ economy."

Leung said she continued to expect the Reserve Bank would leave the OCR on hold until June 2013, but global risks could keep the OCR on hold for longer.

Today's figures show agriculture was the largest contributor to economic growth in the latest quarter, rising 4.7 per cent and contributing to a 3.6 per cent gain in primary industries as a whole, which mainly reflected record milk production. Forestry and logging rose 5.5 per cent.

Construction grew 3.3 per cent, the biggest quarterly gain since a 7.7 per cent jump in the June 2010 quarter, driven by heavy and civil engineering such as roads and bridges, which is at its highest level since the series began in June 1987. Residential building activity grew 6.2 per cent, reflecting work underway in Christchurch.

Transport, postal and warehousing grew 2.7 per cent, the largest increase since the same pace of growth in March 2008.

Manufacturing grew 0.8 per cent, following growth of 1.9 per cent in the first three months of the year.

Electricity, gas, water and waste services fell 2.4 per cent, the fifth straight quarterly decline.

ANZ Bank economist Mark Smith said the GDP data suggested the economy ended the first half of the year with "a reasonable degree of momentum."

"The challenge will be making headway in an increasingly fickle global environment in the second half of this year, and beyond, particularly if the global outlook deteriorates further," he said.

"The OCR remains low, there is a cyclical springboard to leap from and the Canterbury rebuild will eventually boost activity, but structural imperatives, pending fiscal tightening, the high NZD and lower trend growth are likely to restrict the pace of expansion going forward."

The expenditure measure of GDP rose 0.3 per cent, with gross capital formation rising 3.1 per cent on increased investment in plant, machinery and equipment. Household consumption expenditure rose 0.2 per cent, with gains in spending on durable goods, which rose by 1 per cent, led by purchases of cars, motorbikes and bicycles. Household spending on services and on non-durables was flat in the latest quarter.

Exports of goods and services fell 1.2 per cent, reflecting lower shipments of primary products. Imports fell 2.9 per cent on lower imports of intermediate goods.

Gross fixed capital formation rose 3.1 per cent. Residential building investment grew 5.7 per cent, following a revised 0.9 per cent gain in the first quarter. Business investment in fixed assets rose 2.8 per cent, up from 2 per cent in the first quarter.