News Service from House Harris

Australia avoids recession after posting Q1 GDP growth (Wrap)

SYDNEY, June 3 AAP - Australia dodged an economic bullet and returned to growth in the first quarter, as a debate erupted over whether new figures meant the nation had escaped the worst of the global downturn.

Some economists hailed the latest national accounts survey as signalling the start of a recovery amid the worst worldwide economic conditions since the 1930s depression, while others warned tough times were still ahead.

Australia's gross domestic product (GDP) rose by a seasonally adjusted 0.4 per cent in the March quarter, driven by strong consumer spending, robust export growth and a sharp fall in imports.

The result was better than the 0.2 per cent expansion expected by financial markets and reflected a turnaround from the downwardly revised 0.6 per cent decline seen in the December quarter.

Growth was also up over the year, albeit by a meagre 0.4 per cent, Australian Bureau of Statistics (ABS) figures released on Wednesday showed, compared to expectations of a 0.1 per cent rise.

Dragging on the economy in the first quarter was weak business investment, private capital expenditure and a slump in housing construction.

However, the overall outcome appeared promising particularly given economists were initially looking for a 0.2 per cent contraction in the March quarter.

But despite the return to positive growth and the avoidance of the typical definition of a recession - two consecutive quarters of negative economic growth - some economists were wary.

"We might have dodged the technical recession for now, but I wouldn't rule out getting something close to that in the second half of this year," TD Securities senior strategist Annette Beacher told AAP from Singapore.

"We need to look beyond the rosy headline and I still think there are some disconcerting figures in there.

"Our theme is unchanged - we had a terms of trade boom, we are now experiencing a terms of trade bust."

Prime Minister Kevin Rudd and Treasurer Wayne Swan said the figures were good news, but predicted the nation was in for more pain with the unemployment rate still expected to rise.

"We're not out of the woods yet," Mr Rudd told reporters in Canberra.

Australia's March quarter result stands in sharp contrast to its peers in the Organisation for Economic Cooperation and Development (OECD), where 22 of its 30 members countries are already in recession.

Moreover, 20 of 22 OECD countries to have published March quarter economic output so far have reported negative growth.

RBC Capital Markets senior economist Su-Lin Ong said the figures reflected a boost to household disposable income due to record low interest rates and federal government fiscal stimulus packages.

"Policy makers will be pleased that their actions are clearly tempering the depth and duration of this downturn," she said.

"(But) we caution that it is only just beginning to feel the full wrath of the synchronised global recession."

Non-farm GDP, which represents about 97 per cent of the economy, rebounded from two negative quarters to rise 0.5 per cent in the March quarter.

Farm GDP fell 2.5 per cent.

Chief executive of accounting franchise accountantsRus (accountantsRus) Adrian Raftery said despite the positive first quarter outcome Australia was "not recession-safe quite yet."

"Today's figures were great news for the country, but there are a lot of people and businesses out there that are still struggling and will continue for some time yet," he said in a statement.

Not everyone was so cautious or pessimistic, however.

Kinetic Securities Clifford Bennett said the figures showed the Australian economy had bottomed out over February and March.

"As the pessimists and the end-of-the-world mongers continue to push hard for all of us to be depressed, the reality is that the external sector is bouncing back strongly," Mr Bennett said.

"We are part of the Asian region. The Asian region has probably turned the corner and there will be more evidence of that as the data continues to stream out."

CommSec chief economist Craig James said Australia "went close to talking itself into a recession".

"The federal budget is less than a month old but already it looks to be out of date," he said.

"The economy could rebound much quicker than expected, reducing the size of the potential budget deficit."

The broader market also cheered the positive GDP numbers.

Local equity markets closed at their strongest level in almost seven months and the Australian dollar stormed through 82 US cents to post a fresh eight-month high.