New Zealand's economy grew at a faster pace than expected in the first quarter of 2016 as construction expanded at the quickest rate in two years. The kiwi dollar rose after the data was released.

Gross domestic product expanded 0.7 per cent in the three months ended March 31, from a 0.9 per cent pace in the final quarter of 2015. That's ahead of the 0.5 per cent forecast in a Reuters poll of economists, and the Reserve Bank's 0.6 per cent estimate.

The Reserve Bank held off cutting interest rates at its meeting this month as it awaited more data on the economy, including Thursday's report. The better-than- expected growth figures reduce the chances of an imminent cut. The kiwi dollar rose to 70.79 US cents, from 70.38 cents immediately before the figures were released.

Construction grew 4.9 per cent in the latest quarter, the fastest quarterly rate since March 2014, with all construction industries showing growth and led by trade services and heavy civil engineering.

That reflects greater investment in construction, as investment in residential building rose 4.2 per cent, non-residential building increased 4.4 per cent and other construction advanced 12 per cent, the highest quarterly growth rate since June 2014, due to increases in infrastructure such as roading and telecommunications.

On an annual basis, GDP grew 2.4 per cent.

Rising demand for service industries saw service industries grow 0.8 per cent in the quarter, led by health and retail trade. Healthcare and residential care rose 2.7 per cent, the highest quarterly growth rate since June 2005, reflecting higher demand for services from a growing population.

Manufacturing declined 0.4 per cent due to a drop in food, beverage, and tobacco manufacturing.

On an expenditure measure, GDP grew 0.5 per cent in the March quarter, led by a 2.4 per cent increase in fixed asset investment, due to increased investment in residential building and other construction. That lags behind expectations in a Reuters poll for a 0.6 per cent gain in the quarter.