New Zealand’s economy grew at the fastest pace in five years last quarter, sending the local currency near a seven-week high as investors reduced bets the central bank will cut interest rates.

Gross domestic product rose 1.1 percent in the three months ended March 31 from the previous quarter, when it expanded a revised 0.4 percent, Statistics New Zealand said in a report released today in Wellington. Growth was the quickest since the first quarter of 2007 and almost three times the 0.4 percent projection by the central bank and the median estimate in a Bloomberg News survey of 14 economists.

The acceleration of New Zealand’s export-driven economy may be short lived, economists said, as commodity prices fall and Europe’s fiscal crisis restrains consumer confidence. Reserve Bank Governor Alan Bollard last week signaled the official cash rate may remain at a record-low 2.5 percent through the first quarter next year.

“Clearly this sort of number puts any immediate thoughts of easing very much on the back burner, but I wouldn’t rule it out if the world implodes,” said Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland. “The question for the RBNZ is we have declining terms of trade, a tightening fiscal stance and some difficulties offshore. Is the economy going to be able to accelerate from here?”

New Zealand’s dollar rose after the data to 80.17 U.S. cents, the highest level since May 4, from 79.62 cents immediately before the report. Two-year swap yields rose to 2.82 percent from 2.7 percent.

Rate Outlook

There is a 32 percent chance of a quarter-point rate cut by the Sept. 13 review, down from 48 percent late yesterday, according to interest-rate swaps data compiled by Bloomberg.

The economy rose 2.4 percent from the year-earlier quarter, faster than the 1.3 percent estimated by economists and the 1.9 percent pace in the fourth quarter.

New Zealand consumer confidence fell this month to the lowest level in more than a year. A gauge of confidence index dropped to 105.8 from 113.9 in May, ANZ National Bank Ltd. said in an e-mailed report June 15, citing a Roy Morgan survey of 1,040 people.

“Today’s numbers confirm moderate underlying strength in the economy, despite the uncertain international mood and difficulties in Europe in particular,” Finance Minister Bill English said in an e-mailed statement. The government said in the May 24 budget it will cut spending to return to surplus by 2014-15.

Downgraded Forecasts

Bollard on June 14 forecast annual growth of 1.2 percent. He lowered his GDP projections for the next three years, citing falling commodity prices and spending restraint.

New Zealand’s annual growth is the fastest since the second quarter of 2010, bolstered by the spending of foreign fans at last year’s Rugby World Cup and increased milk production.

Australia’s economy expanded 4.3 percent in the first quarter from a year earlier, lifted by household spending and engineering construction, according to a June 6 report.

In New Zealand, farm output rose 2.3 percent in the first quarter on favorable weather conditions that led to increased milk production. Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said in April that milk collection in the eight months ended March 31 was 10 percent higher than a year earlier.

Manufacturing rose 1.8 percent as food, beverage and tobacco production quickened, the agency said.

Professional and business services, which includes legal and advertising, increased as did public administration activity.

Tourism Spending

Retail and accommodation activity fell 0.6 percent from the fourth quarter, when purchases by local supporters and 133,000 foreign fans bolstered spending to a record. Construction declined 0.1 percent.

Purchases of appliances, vehicles and other durable goods rose to a record in the quarter and there was increased spending by New Zealanders traveling overseas. Spending on food and other non-durables declined and overall household consumption gained 0.1 percent, the statistics agency said.

Investment increased 1.7 percent, led by a rise in business investment in fixed assets. Investment in residential housing declined, the agency said.

Exports of goods, which make up 30 percent of the economy, fell 1.7 percent, the most since the third quarter of 2008, as crude oil and metal products declined. Exports of services fell, led by a decline in tourist spending. Imports gained 4.1 percent.

Bloomberg