The economy put on a big spurt on in the December quarter, growing a much better-than-expected 1.5 per cent, boosted by a forestry boom and a jump in retail spending and construction.
It was the strongest quarterly GDP growth since December 2009, Statistics New Zealand said, and followed a soft patch earlier last year.
The New Zealand dollar spiked up almost half a cent on the news, rising from US82.2c to US82.6c.
Growth was better than economists expected and much stronger than the Reserve Bank predictions.
Westpac Bank economists said the high growth rate was "a significant development", and was a step towards backing their call for earlier and more aggressive interest rate rises than the market was presently expecting. The Reserve Bank has held the official cash rate at its historic low of 2.5 per cent since March 2011 and said last week it expected to keep it at that level through the end of 2013.
Today's GDP data beat Westpac's top-end pick of 1.2 per cent showed the huge boost coming from the Canterbury rebuild.
"We have long expected it to provoke a high rate of growth, inflation pressures and eventually interest rate hikes - the first phase of the process is now confirmed," Westpac said, dispelling doubts about the effect from the Canterbury rebuild.
The extent of the positive surprise for the Reserve Bank was equal to the worst that could be expected from the current drought, Westpac said.
But a repeat of the extremely high growth rate was not expected in coming quarters. Part of the December quarter boost was a bounce-back from low growth earlier in 2012.
Westpac predicted growth of 1 per cent a quarter this year, but the June quarter could be weaker because of the drought.
The figures pointed to a generalised upturn in domestic demand, and at the end of last year the weather was still favourable to farm production. The drought would not really hit GDP figures till the June quarter, with the official release due out in six months.
Growth for the year was 2.5 per cent, the best since early 2008 when the economic recession started, initially sparked by drought, followed by the impact of the global financial crisis.
"Fifteen of the 16 industries recorded increases in the last three months of 2012, reflecting the broad-based nature of growth in this quarter," Statistics NZ national accounts manager Rachael Milicich said.
The median market forecast for December quarter growth before today's announcement was 0.9 per cent, and the top of the range about 1.2 per cent. The Reserve Bank forecast was 0.8 per cent, but at least before today's figures the central bank was not expected to start raising interest rates until well into next year.
The broad-based growth in the December quarter was led by agriculture, forestry, and fishing (up 2.6 per cent), mainly due to the largest quarterly increase in forestry and logging activity in 13 years, Statistics NZ said.
Retail trade and accommodation was up 2.3 per cent, with the strongest gain in quarterly retail trade since early 2007.
Construction was up 1.8 per cent in the quarter, with more building of roads, bridges and power plants.
But economists say the current drought will pare back the expected boost from the Canterbury rebuild this year.
Economists had expected a broad-based recovery in the final three months of last year, boosted by rebuilding work in Canterbury, dairy production holding up, and better shop sales.
Consumer confidence is also holding up this year, supported by rising house prices
The latest survey of consumer confidence, out earlier this week, showed households remained chipper, despite the drought and a rash of job cuts.
Rain finally started to fall in drought-hit areas during the weekend, and for many it was the first rain since early February.
But government officials said earlier this week that drought could cut as much as $2 billion from the economy. That would put the impact at close to levels seen in the last severe drought of 2008 which cost $2.8b and pushed the country into recession, though that was not expected this time.
So while there was a strong end to 2012, the North Island drought would pare back growth this year.
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