By Tracy Withers and Gavin Evans
March 28 (Bloomberg) -- New Zealand's economic growth accelerated in the fourth quarter, reaching the fastest annual pace in three years as it exported more butter, cheese and crude oil.
Gross domestic product increased 1 percent from the third quarter, when it gained 0.5 percent, Statistics New Zealand said in Wellington today. The median estimate of 13 economists surveyed by Bloomberg News was for a 0.8 percent expansion. The economy grew 3.7 percent from a year earlier.
The fastest annual growth since mid-2004 justifies Reserve Bank Governor Alan Bollard's decision to leave interest rates at a record-high 8.25 percent to combat inflation in the $104 billion economy. Economists say growth will slow as the property market cools and a drought cuts farm production, raising the prospect borrowing costs could be reduced in the second half of the year.
``The New Zealand economy finished 2007 with a flurry,'' said Hayden Atkins, an economist at Macquarie Group Ltd. in Sydney. ``But really this data doesn't tell the story of the headwinds the economy is facing coming into 2008. It's probably downhill from now.''
New Zealand's dollar rose to 80.62 U.S. cents at 12:42 p.m. in Wellington from 80.23 cents immediately before the report was released.
Bollard forecast this month that economic growth will slow to 2 percent in 2008. The average estimate of 11 economists surveyed by the New Zealand Institute of Research is for 1.7 percent.
Consumer confidence slumped to a 10-year low in the first quarter, according to a survey published on March 26 by Westpac Banking Corp. and McDermott Miller Ltd. Finance Minister Michael Cullen last week said he couldn't rule out the possibility the economy may slip into a recession.
Seven of 15 economists surveyed by Bloomberg News say Bollard will cut interest rates this year. Eight expect no change until 2009. The central bank reviews the official cash rate on April 24.
Bollard said on March 6 rates needed to stay high ``for a significant time yet'' because annual inflation will stay above the 1 percent-to-3 percent range he targets until mid-2009. Consumer prices rose 3.2 percent in the fourth quarter from a year earlier.
``We'd expect inflationary pressure to dissipate quicker than expected, so the Reserve Bank of New Zealand could turn around on their more hawkish bias in the next couple of months,'' Macquarie's Atkins said.
Economic growth in the fourth quarter was stoked by commercial building, dairy exports and production from the Tui oil field, which began output in late July.
Overseas shipments of goods and services rose 5.4 percent in the quarter, led by dairy products and oil, the statistics agency said. Imports volumes rose 4.3 percent.
Dairy shipments, which make up one-fifth of the nation's exports, rose after a late start to the season slowed third-quarter sales. Auckland-based Fonterra Cooperative Group Ltd., the world's biggest dairy exporter, said on Jan. 29 that sales in the six months through November were buoyed by rising milk production and higher prices.
Still, on Feb. 8 the company said drought had cut output in January, which may restrict the company's ability to fill new export orders.
Commercial construction rose 2.3 percent in the fourth quarter and manufacturing increased, led by dairy and meat processing. Business investment surged 6.2 percent as companies purchased plant and machinery to relieve capacity constraints.
Farm production increased, led by output from dairy farms. Mining, forestry and fishing rose 7.9 percent.
Residential construction fell 1.6 percent. Demand for property is declining amid rising home-loan interest rates and a slump in immigration to the lowest in more than six years. House sales dropped 32 percent in February from a year earlier, according to Real Estate Institute figures.
Consumer spending, which makes up 60 percent of the economy, rose 0.5 percent from the third quarter, when it gained 0.4 percent. Spending on alcohol, food and other so-called non-durable goods fell 1.4 percent. Purchases of durable items rose 1.5 percent, led mostly by clothing and recreation goods.
New Zealanders are cutting back on purchases of cars, computers and appliances as they pay higher interest costs on their mortgages and credit cards. The lending rate on a two-year fixed home loan was 9.5 percent in January compared with 8.2 percent a year earlier.
Hallenstein Glasson Ltd., the third-biggest publicly traded retailer, said this week that profit at its clothing stores fell in the six months ended Feb. 1.
``Retail conditions will continue to be challenging for the immediate future as high interest rates, increased fuel costs and cost-of-living increases restrict consumer spending,'' Chairman Warren Bell said in a statement to the stock exchange.
The GDP deflator was 4.1 percent in the year ended Dec. 31, the statistics agency said.