On paper, the chances of another interest rise look to have risen after this morning’s stronger than expected economic growth figures for the first quarter of the year. On paper, that is.

The economy has been hit with four interest rate rises in eight months, including two this year, plus around 0.40% from the banks on top of that 1%; not to mention a credit crunch, rising petrol prices, higher food costs, and falling retail sales and consumer confidence, and yet it won’t lay down and die!

Figures from the Australian Bureau of Statistics show that Gross Domestic Product rose 0.6% in the year to be 3.6% higher in the year to March, compared to market estimates of 0.2% to 0.3% for the quarter and around 3.2% for the year.

A couple of forecasters were around 0.5% — Rory Robertson of Macquarie Bank, for instance.

The quarterly increase was marginally slower than the upwardly revised 0.7% rise in GDP in the December quarter (0.6% originally) and the annual rate was a bit slower than the 3.9% rate in the December three months.

The slowdown wasn’t as pronounced as it seemed from the figures, with the sluggish nature of home building approvals, private capital spending and especially retail sales which fell for two of the three months for no growth across the quarter.

It was a release that surprised the market and saw the value of the dollar perk up a touch to around 95.40 US cents in the minutes after the release at 11.30 am. But there are signs that the slowdown is taking shape and not appearing in an obvious fashion.

Economists point out that growth is actually running at 2.6% on an annual basis over the December and March quarters, compared to an annual rate of 4.7% over the June and September quarters when the effects of easy credit, low interest rate regime and slowly rising inflation, were in full swing.

Rory Robertson reckons for that reason, the RBA’s hand won’t be forced.

On top of this we have the slowdown in April retail sales (and in the services sector, according to figures out today for May). As well, the building approval figures were skewed by very high approvals for Queensland (which fell sharply in March), especially for investment properties. Economists said that allowing for Queensland’s above average rise, building approvals across the rest of Australia fell 0.3% on top of the 5.5% fall in March.

But the Reserve Bank, which yesterday left interest rates alone after becoming a bit anxious at their May 6 meeting, will be a touch surprised at the figures.

In the statement after yesterday’s announcement of no change in rates, RBA Governor, Glenn Stevens said:

The evidence is that this is helping to produce a moderation in demand. While labour market conditions to date have remained strong, indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly.

Well, figures from the Reserve Bank last Friday showed a sharp drop in the growth rate for credit — a rise of just 0.4% in May, the lowest monthly rise for around five and a half years. Housing and personal credit were subdued, while business lending growth slowed. And building, private capital spending and retail sales were subdued to weaker in the quarter.

And yet the Australian Bureau of Statistics said in its commentary on the March quarter figures that household consumption was the main driver, along with higher new engineering and construction and government defence spending.

“In seasonally adjusted terms, the main contributors to the increase in expenditure on GDP were Household final consumption expenditure (0.4 percentage points), New engineering construction and National-defence capital expenditure (both 0.3 percentage points). The largest negative contribution came from Imports of goods and services (-0.8 percentage points).”

The ABS said that the terms of trade rose 1.1% in the quarter (1.1% as well in the December quarter) and over the year to March. That saw real income rise 0.8% in the quarter, which helped power the surprise rise in consumption.

The Bureau said that in the March quarter “trend real net national disposable income increased by 0.9%, with growth over the past 4 quarters at 4.2% compared to 3.7% for GDP.”

That led to an increase in the savings rate of 0.5%, and household savings are still in the black. A rise in the unemployment rate and fewer new jobs in May in next week’s employment figures will give the bank more heart that its policies are working.