The dairy sector is storming back from last summer's drought, pushing the economy up a better than expected 1.4 per cent in the September quarter - the strongest result since 2009.
Most bank economists had expected the economy to grow between 1 per cent and 1.3 per cent, but farming recovered faster than predicted.
Westpac Bank economists said the 1.4 per cent growth was as it had predicted. It reinforced the picture that the economy was "firmly in the grip of a widespread upturn".
Westpac expected a bulge of GDP growth in the next couple of years, with post-earthquake rebuilding in Canterbury and robust building work in other parts of the country.
The stronger economy than the Reserve Bank had expected this year would make it more inclined to raise interest rates, with Westpac picking the first move in March next year.
The surge in dairy production saw agriculture up a massive 17 per cent in the three months to the end of September, after two quarters hit badly by the severe but short-lived drought.
It was the biggest lift in agriculture in 25 years and while dairy was the biggest factor, sheep and cattle farming also gave the economy a lift.
Agriculture makes up about 5 per cent of the New Zealand economy.
Finance Minister Bill English said that despite this year's drought being the worst for many decades, New Zealand was now one of the faster growing developed economies in the world.
Annual growth here was moving ahead of Australia, he said.
Forestry and logging were also up strongly, rising more than 8 per cent in the three months to record levels, as exports boomed.
As a result, the economy grew faster than expected, Statistics NZ said, despite weaker construction and business service sectors. Mining was also down in the quarter, by almost 5 per cent with lower coal mining and oil and gas extraction.
Economic activity for the September year was up 2.6 per cent, with the June quarter result revised up 0.3 per cent.
Economists expect growth to pick up even more next year, to top 3 per cent.
The lift in September quarter GDP was the fastest rise since the end of 2009, Statistics NZ said.
"Dairy farming has really bounced back from the drought this year," Statistics NZ acting national accounts manager Steffi Schuster said.
"The increase in agriculture is the largest in more than 25 years, as good weather boosted production well above the weak June quarter."
Dairy product manufacturing also increased this quarter, which contributed to a 1.5 per cent rise in total manufacturing. Metal product manufacturing was up 6.6 per cent in the quarter, boosted by the Canterbury rebuild.
While manufacturing production was up, exports of dairy products fell this quarter, leading to a buildup of inventories. The $770 million increase in total inventories this quarter is the largest buildup since the series began.
Increases in agriculture and manufacturing production were partly offset by declines in construction, down 1 per cent with lower infrastructure and commercial building, offsetting higher home building.
Business services were also down, almost 1 per cent, with lower activity for employment and administrative services, though architecture and engineering services were up.
The volume of spending by New Zealand households was up 0.4 per cent, mainly due to increased spending on durables like furniture and motor vehicles.
- © Fairfax NZ News