Full recovery a long way off: Swan

The Australian economy has "a long way to go" to full recovery, making it too early for the Government to curb stimulus spending, Treasurer Wayne Swan said.

"Australia still faces tough challenges," Swan said in an interview broadcast by Channel Nine.

The continuing global recession means a higher cost of capital internationally, growing joblessness, reductions in business investment and a worsening of the nation's terms of trade, he said.

The Australian economy grew 0.4 per cent in the first three months of 2009, rebounding from its first quarterly contraction in eight years, as the Government distributed more than A$12 billion ($9.8 billion) to households to stoke consumer spending. In his May Budget, Swan unveiled a $22 billion building programme to upgrade roads, ports, hospitals and schools.

Once growth "returns to trend," the Government will move to restrain spending, Swan said, though he did not say when that would be..

When asked about the possibility of the Reserve Bank of Australia raising interest rates while unemployment is still rising, Swan said the central bank still maintains that the nation faces a "difficult outlook."

"The big challenge in our economy is to continue to support employment and to support business, to keep our stimulus in place, because the toughest global conditions in 75 years and the consequences of that are going to be with us for some time to come."

Australia's dollar rose to the highest since September on July 31 and the country's stocks made their third weekly gain.

- BLOOMBERG