By Lucy Craymer

WELLINGTON New Zealand's economy grew more than expected in the second quarter supported by better activity in the services sector.

Official data out on Thursday showed gross domestic product (GDP) rose 0.9% in the June quarter, higher than analysts' forecasts of 0.5%, and followed a revised 0.0% in the first quarter.

Flat growth in the first quarter means the country was never technically in recession.

Annual growth increased to 1.8%, Statistics New Zealand data showed.

The stronger-than-expected growth might be a worry for the central bank, which has said it needs slower economic growth to dampen inflation and inflation expectations.

The service industry was a key driver of growth over the quarter, while the manufacturing sector saw some improvement after some subsectors were impacted by Cyclone Gabrielle in the first quarter, said Statistics New Zealand in a note.

"Business services was the biggest driver of economic growth this quarter, largely due to computer system design," said Jason Attewell, economic and environmental insights general manager at Statistics New Zealand.

The Reserve Bank of New Zealand has undertaken its most aggressive policy tightening since 1999, when the official cash rate was introduced, lifting it by 525 basis points since October 2021 to 5.50%. However, it has signalled that it has finished hiking.

The central bank in August forecast the country would enter a recession in the third quarter of 2023, while in updated forecasts last week, the Treasury said it expected the country to avoid recession.

Statistics NZ has reviewed the seasonal adjustment of the data this quarter, made COVID-related points and incorporated some updated data indicators, which resulted in some of the revisions for the first quarter.

(Reporting by Lucy Craymer; Editing by Sonali Paul)