Lucky Country pulls off recession Houdini act

There was a glow to Australia yesterday as statistics defied predictions to show the nation has yet again escaped recession by the skin of its teeth, and farmers revelled in rain.

In Canberra, the Bureau of Statistics released the latest national accounts with the news that recession - technically defined as two successive quarters of economic contraction - has not yet taken hold.

And from Queensland to Victoria, and in Western Australia, showers watered crops and pastures now buffering the economy against falling resources income.

The national accounts showed that after a 0.6 per cent contraction in the December quarter and despite widespread forecasts, gross domestic product nudged up a seasonally adjusted 0.4 per cent in the first three months of the year.

Non-farm GDP grew 0.5 per cent.

But there were warnings that the nation still faces tough times.

"The Australian economy is not out of the woods yet and the full impacts of this global recession still have some way to run," Treasurer Wayne Swan said.

The bureau said the nation's terms of trade fell 7.8 per cent in the quarter, real gross domestic income declined 1.4 per cent and private business investment contracted by 1.1 per cent.

Growth was further depressed by declines in manufacturing, property and business services, and construction.

The biggest boost to growth came from the 1.6 per cent added by falling income.

Reserve Bank Governor Glenn Stevens added further caution after Tuesday's decision to hold the cash rate unchanged at 3 per cent. He said the economy was contracting, with falling use of capacity, weakening labour demand and below-average business loan rates.

However a pick-up in housing was likely later in the year.

Commonwealth Bank chief economist Michael Blythe told ABC radio that the March quarter growth reflected growth in consumption helped by net export gains and federal stimulus packages.

"But really the investment side of the economy is still very weak," he said.

"We still see fairly weak conditions in the economy. We don't see a return to trend growth until late this year, early 2010.

"So while we might not be officially able to tick off recession, to allintents and purposes we are there."

The key role agriculture is now playing is also uncertain.

An 18.6 per cent surge in rural commodities drove the increase in exports that saw the balance of payments narrow significantly in the March quarter, with total farm exports forecast to rise by a further 4 per cent to A$32.1 billion ($40.5 billion) in 2009-10.

By comparison, the Bureau of Agricultural and Resource Economics predicts a 22 per cent slump in earnings from mineral resources.

But the Bureau of Meteorology yesterday cast a shadow over optimistic forecasts, warning that the odds of a return of an El Nino event this year were now more than 50 per cent, following recent trends in Pacific climate patterns. An El Nino is frequently accompanied by drought.