June 25 (Bloomberg) -- New Zealand's economic growth rate accelerated at the fastest pace in more than four years in the first quarter as more houses were built and consumers spent more on cars and furniture.

Gross domestic product expanded 2.3 percent in the three months ended March 31, Statistics New Zealand said in Wellington. That's more than three times the revised 0.7 percent pace in the fourth quarter. Analysts expected 1.5 percent, according to the median forecast of 12 economists surveyed by Bloomberg News. From a year earlier, the economy grew 5 percent.

Central bank Governor Alan Bollard, who raised the benchmark interest rate in January, April and June to slow spending and curb inflation, said this month the economy is stronger than he expected and he may raise borrowing costs again.

``Stronger than expected growth will cement the market's view for a rate increase in July,'' Kate Skinner, economist at ASB Bank Ltd. in Auckland, said before the report was released. ``The implications for inflation were a key reason for the June increase.''

Bollard forecast annual inflation will accelerate to 3.3 percent by March 2005 from 1.5 percent a year earlier. Twelve of 15 economists expect he will raise the key rate a quarter point to 6 percent on July 29, according to a Bloomberg News survey.

The New Zealand dollar rose to 63.47 U.S. cents at 10:50 a.m. in Wellington from 63.37 cents before the report.

Construction of homes and non-residential buildings rose 9.1 percent in the first quarter, while investment in new housing increased 9.8 percent, the agency said.

Home building accelerated, fueled by the arrival of 28,000 migrants in the year ended March 31 and a 22 percent increase in the price of existing homes, analysts said.

Consumer Spending

Falling unemployment, surging house prices and higher wages have boosted consumer spending, which makes up more than 60 percent of the economy.

New Zealand's jobless rate fell to a 16-year-low 4.3 percent in the three months ended March 31, helping first-quarter average hourly earnings for non-government workers rise 2.9 percent from the year earlier.

Private consumption rose 2.9 percent in the quarter, the statistics agency said. Spending on cars, furniture and other so- called durable goods increased, it said. New car registrations in March rose 22 percent from a year earlier.

``Internal demand has been buoyant,'' the statistics agency said in a statement. Private consumption rose 6.9 percent from the year-earlier quarter, the biggest annual jump in at least six years.

Farm Production

Farm production rose 0.4 percent from the fourth quarter. Dairy production increased 1.9 percent.

Fonterra Cooperative Group, the world's biggest dairy exporter, last week said milk production in April rose 6.3 percent from a year earlier to a record 877 million liters, allowing the company to achieve monthly sales of NZ$1 billion ($634 million) for the first time.

Fonterra will pay New Zealand farmers more for milk in the season ending May 31, 2005, because butter and milk powder prices are rising, boosting farmers' incomes by about NZ$420 million next year.

Production from the forestry industry jumped 6 percent from the fourth quarter, according to the statistics agency. That's the first increase in five quarters.

Overall exports of goods and services rose 3.4 percent in the quarter, while imports increased 4.2 percent. Overseas sales of meat rose 4.5 percent and seafood exports jumped 10 percent. Tourism spending, which is an export of services, fell as visitors spent less.

Manufacturing rose 3.8 percent in the quarter led by increased food processing, the agency said. Business investment gained 4.1 percent after more spending on buildings, transport equipment and other imported machinery.

The implicit price deflator rose 2.8 percent for the year to March 31, the agency said.

To contact the reporter on this story: Tracy Withers in Wellington, New Zealand at twithers@bloomberg.net.

Last Updated: June 24, 2004 18:55 EDT