The December gross domestic product (GDP) economic growth was 1.5% after just 0.2% in September. The data was much stronger than the Reserve Bank or other economists had forecast and stronger than Westpac's top-of-the-market pick of 1.2%, he said.
''Growth was very broad-based. Significantly, the service sectors had their strongest quarter in six years. This is a significant development. Markets have long doubted the stimulatory effect of the Canterbury rebuild. Those doubts will now be dispelled.''
To put it into perspective, the surprise to the Reserve Bank from yesterday's release from Statistics New Zealand was equivalent to the maximum negative impact it could ''reasonably'' build in for drought, Mr Stephens said.
''We feel this data is a step towards backing our call for earlier and more aggressive official cash rate hikes than the market is currently pricing.''
The Canterbury rebuild amounted to a huge stimulus for the economy, he said.
Westpac had long expected it to provoke a high rate of GDP growth, inflation and eventually, interest rate hikes. The first phase of the process was now confirmed, Mr Stephens said.
Council of Trade Unions economist Bill Rosenberg acknowledged the latest economic growth but said jobs were still missing from the equation. Growth was still patchy. One-quarter of strong 1.5% growth did not make for a ''booming economy'' when, at the same time, there was 6.9% unemployment.
There were still 163,000 people unemployed and 284,000 jobless - with many people discouraged from finding work - and 111,000 wanting more work.
The growth in the economy also implied increasing labour productivity which should lead to higher wages, if wage bargaining was working properly, Mr Rosenberg said.
''But we are not seeing the growth in GDP flowing through into pockets through jobs or incomes. Worries about manufacturing will continue after these results.''
BNZ research head Stephen Toplis said it was true that while GDP appeared to be going from strength to strength, as yet, there was no labour market response. But the fourth quarter figures were further support for his view that it was just a matter of time.
''On the down side, the drought will throw a spanner in the works. It's difficult to gauge exactly the impact of this but we think it could yet knock more 1% off GDP when all is said and done.''
Ironically, the heightened starting point created by yesterday's strong result increased the likelihood of a recession in the future.
''But to look at the economy in this light misses the point. What the higher starting point also means is that we can now afford a couple of surprisingly low quarters and yet still have activity levels as robust as we have been forecasting. In this regard, it reduces the likelihood that the central bank might feel the need to lower interest rates,'' Mr Toplis said.
Finance Minister Bill English was optimistic about the future, saying indications were that growth would continue this year as consumer and business confidence rose. A lift in household spending signalled that people were feeling more secure and optimistic.
New Zealand was still performing better than most other OECD countries, he said. New Zealand's GDP growth of 3% in 2012 compared with 1.6% in the United States, 1.1% in Canada, 0.4% in Japan, 0.3% in the United Kingdom and -0.9% in the euro zone.
At a glance
• December quarter GDP 1.5%, Reserve Bank forecast 0.8%. September GDP 0.2%. Annual GDP 3%.
• December results driven by robust increases in retail trade, financial and insurance services and recreation and other services. Stronger housing market activity is supporting a further recovery in residential investment.
