New Zealand’s economy contracted at its fastest rate in more than 16 years in the final months of 2008 but predictions the country is over the worst added to a string of gains for the New Zealand dollar on Friday.

December quarter gross domestic product fell 0.9 per cent from the September period, slightly better than economists’ forecasts, due to a particularly sharp contraction in residential construction, which was down 14 per cent, and a 3.3 per cent fall in export volumes. GDP rose 0.2 per cent from the same period in 2007.