Annual GDP growth was 3.5% for year to June

Gross Domestic Product rose by 0.7% in the June quarter, according to Statistics NZ, driven by strong growth in the services sector.

However real gross national disposable income fell for the first time in two years. 

The 0.7% rise the June quarter brought GDP growth for the year to June to 3.5%, the highest annual growth figure since the year to September 2007.

The quarterly growth in GDP came in slightly ahead of the consensus of economists' expectations of 0.6%, but below the Reserve Bank's expectations for 0.8%. The annual 3.5% rate was in line with economists' expectations, but again slightly below the 3q.6% expected by the Reserve Bank.

The main driver was a 4.2% increase in business services activity, which was partially offset by a 2.8% decline in agriculture, forestry and fishing.

The construction sector increased by 2.2% for the quarter, mainly due to heavy and civil engineering work.

Retail trade and accommodation were up 1.4%, while wholesale trade was up 2.2% due to machinery and heavy equipment wholesaling.

The expenditure measure of GDP rose 0.5% in the June quarter while domestic demand (spending and investment by New Zealanders) rose by 2.2%, Statistics NZ said.

Household consumption rose 1.3% driven by spending on accommodation, services, telecommunications used motor vehicles and audio visual equipment.

Investment in fixed assets was up 1.5% due to increases in construction and transport equipment.

Imports of goods and services increased 2.9% while exports fell by the same amount.

The size of the economy (in current prices) was $229 billion for the year to June, while GDP per capita was $51,190 for the same period.

Real gross national disposable income, which measures the real purchasing power of New Zealand's disposable income, fell 0.5% in the June quarter, its first fall since since the June 2012 quarter.

The decrease was due to changes to the country's terms of trade, which meant less imports could be purchased with a fixed quantity of exports, Statistics NZ said.

Westpac chief economist Dominick Stephens said in a note on the figures that overall, they backed his view that parts of the economy had experienced a loss of altitude during the second quarter of the year, but the eoverall trend remained robust.

"We expect relatively strong GDP growth over the year or so ahead.

"However the divergence between the very strong domestic economy and the weaker export sector may continue or intensify," the note said.