The economy has rebounded from its mid-year slump as stronger manufacturing, construction, and business services pushed growth, backing the case for interest rates to be held steady.

Stats NZ data showed gross domestic product (GDP) - the broad measure of economic growth - rose 1.1 percent in the three months ended September, to be 1.4 percent higher than a year ago.

Expectations were for quarterly growth of about 0.9 percent, although the contraction in the previous quarter was revised lower to 1.0 percent from 0.9 percent.

"The 1.1 percent rise in economic activity ... was broad-based, with increases in 14 out of 16 industries," Stats NZ spokesperson Jason Attewell said, adding the economy had grown in three of the four past quarters.

Turning the economic corner

The strongest sectors were manufacturing and business services such as professional and technical, which both grew 2.2 percent, and construction rising 1.7 percent.

Exports were up 3.3 percent, on the back of strong dairy and meat performances, but households' activity rose 0.1 percent.

There were smaller positive contributions from real estate services, retail, and energy and water industries.

The sectors to contract were telecommunications and internet services, and education and training.

Individual shares of the economy - per capita GDP - rose 0.9 percent,.

The country's purchasing power (disposable income) improved 0.7 percent for the quarter.

Slow recovery

The latest GDP reading has already been overtaken by more recent data with the monthly surveys of the manufacturing and services showing they have been going backwards, despite positive sentiment surveys.

Retail sales have been improving, the GDP data showed increased demand for televisions, computers, and mobile phones.

Dr Anna Breman Photo: RNZ / Samuel Rillstone

"The retail trade survey shows increased spending on durables in the September quarter, with motor vehicle parts retailing up 7.2 percent, and electrical and electronic goods up 9.8 percent," Attewell said.

However, consumer sentiment has remained pessimistic, with households concerned about the weak labour market and the continued high cost of living, while lower interest rates have been slow to filter through.

Forecasts are for a gradual pick up in growth next year to around 1.5 percent, rising towards 3 percent in 2027.

Rates on hold

The Reserve Bank last month cut the official cash rate (OCR) by 25 basis points to 2.25 and signalled it was likely the end of the rate cutting cycle, although it left the door ajar for further easing if the economic numbers turn sour.

That message has been reinforced by the new Governor, Anna Breman, over the past week who has said financial markets are getting ahead of themselves by starting to price in RBNZ rate rises next year.

Economists expect the economy to post stronger growth, which might underpin inflation pressures, although they believe there is sufficient slack in the economy to counter inflation.

New Zealand's quarterly growth rate matched China's 1.1 percent, but outpaced most of our main trading partners, with Australia and the EU at 0.4 percent, Canada at 0.6 percent, and UK at 0.1 percent.

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