Economists warn New Zealand interest rates may spike as soon as February amid GDP rise

New Zealand's economy is back to pre-COVID levels thanks to a domestic spending boom. 

It's now worth a whopping $325 billion - but even with our foot on the accelerator, it's down annually by 2.3 percent.

"There are parts of the economy that are struggling immensely," ANZ senior economist Miles Workman said. "We saw that in services exports reflecting the closed border and missing in action tourists."

And the big spend-up now will bite back later, in the form of higher interest rates.

Economists now expect them to come as soon as February. 

"We've brought that forward by a good six months," Workman said.

For now, though, New Zealand's economy look good.

Dining out and buying big-ticket items like furniture and TVs helped New Zealand's economy grow 1.6 percent in the March quarter - three times more than expected.

And spending on things like dining out and accommodation rose 2.3 percent in the first three months of the year.

That's despite two COVID-19 outbreaks which sent Auckland into higher alert levels for 20 days and the whole country for 10 days.

"We're obviously seeing people spend their money on a new toy for the garage, so higher performance stuff, Commodores and Mustangs, anything kinda fruity," said Sean Pearce, general manager of car dealership Pearce Brothers.

Construction also contributed massively to economic growth - up 6.6 percent in the three months to March. 

"We're extremely busy," Leigh's Construction project manager Graham Osmers said. "We're at capacity. We're being selective about the projects we're undertaking currently."