New Zealand Gross Domestic Product (GDP) rose 1.6 percent in first quarter of this year, latest figures show.

In an announcement on Thursday, Statistics New Zealand confirmed GDP, a measure of growth in national outputs, rose 1.6 percent during the March 2021 quarter.

The rise follows a 1 percent drop in the December 2020 quarter and captures the ten days of Auckland level 3 lockdown in February/early March.

Compared to the March 2020 quarter, GDP in the March 2021 quarter was up 2.4 percent.  Annual average GDP, reflecting the four quarters to March 2021 compared to the four quarters to March 2020, fell 2.3 percent. 

Statistics New Zealand national accounts senior manager Paul Pascoe said despite border restrictions, the GDP rise reflects "broad-based growth" across the country.

Services industries, representing around two-thirds of New Zealand's economy, made the biggest contribution to the March 2021 result. 

Service industry GDP rose 1.1 percent, as Kiwis opened their wallets to spend on accommodation, eating out, furniture, audio equipment and cars. Household spending was up 5.5 percent.

"This helped support the growth in retail trade and [the] accommodation industry and wholesale trade industry," Pascoe said.

GDP across goods-producing industries rose 2.4 percent. Across primary industries, GDP rose 0.3 percent, as rises in agriculture and forestry were partially offset by falls in mining and fishing.

Wholesale trade growth was supported by higher activity in wholesale machinery, equipment and motor vehicle wholesaling. Investment in plant, machinery and transport equipment increased.

Business services, healthcare, social assistance services and the media and telecommunications industries all benefited from higher activity.

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After a 8.4 percent fall in the December 2020 quarter, construction activity was up 6.6 percent.  Residential building construction, along with construction services and heavy and civil engineering construction were strong contributors to this growth.

"The construction industry has returned to near-record levels of activity with historically high volumes of residential building work contributing to overall activity," Statistics New Zealand said.

In the year to March 2021, the size of the economy (in current prices) is $325 billion.

Ahead of the release, ASB was expecting a GDP gain of 0.5 to 0.8 percent - coming in under the official March result.  

ASB senior economist Jane Turner said the March 2021 GDP result is a "very large surprise", showing domestic demand is stronger than expected.

"The strength in domestic demand is very broad-based with strong growth in spending by New Zealand households, a strong lift in business investment and a strong lift in Government spending."

"The New Zealand economy is on very firm footing and indicators for growth over the June 2021 quarter are also encouraging," Turner said.

She said going foward, the key challenge to growth will be capacity constraints rather than demand.

Economist Cameron Bagrie said it's looking increasingly likely the Reserve Bank will raise the Official Cash Rate, pushing up interest rates.