Once again we see the topsy turvy nature of the economy. The economy rose faster than forecast, growing by 0.6% for the three months to June as consumers spent their cash splash money and the tax incentives for small and medium business helped maintain solid investment levels.

It was the second quarter in a row where the economy grew much faster than anyone in the markets had expected after the March quarter’s surprise 0.4% rise (now cut to 0.3% in today’s revised figures).

That gave growth for 2008-09 of 0.6%, meaning that Australia has “dodged the bullet” of recession, even though the December quarter was negative. It was double the market forecast of a 0.3% growth rate.

Australia joins China, South Korea, France, Germany, Japan and several other economies experiencing positive second-quarter growth.

But unlike many of those countries, only China, South Korea and Australia had positive growth for the first six months of the year.

The dollar rose, but hasn’t regained the 84 US cent mark it traded at yesterday before the Reserve Bank’s board meeting, nor did it help the stockmarket which was following Wall Street’s lead and having a good fret about the health of the financial sector, even though the ANZ Bank made it clear on Monday it saw conditions improving in the sector.

The rise in growth was much more than the 0.2% forecasts from market economists, which had been wound back after worse than expected profits, stocks and current account figures for the quarter were released on Monday and Tuesday.

The growth figures put an interest rate rise right back on track for either October or November at the latest.

Investment and construction spending was strong, importers made more of a ‘negative impact’ than did the positive impact from exports. Farm and Government stocks rose, more than offsetting the sharp fall in business stocks in the quarter, which were reported on Monday.

Household consumption rose 0.8% in the quarter, adding 0.5 percentage points to overall growth. Exports rose 1% and added 0.2 percentage points to GDP.

New machinery and equipment also contributed 0.5 percentage points to the GDP as the tax incentives for investment for small and medium companies helped trigger higher demand.

But sluggish new building construction clipped 0.3 percentage points from GDP, seasonally adjusted, while imports, reflecting lower contract prices for iron ore and coal, deducted 0.5 percentage points.

But all this confirmed what RBA Governor Glenn Stevens said in his post meeting statement yesterday when he wrote:

‘Economic conditions in Australia have been stronger than expected, with consumer spending, exports and business investment notable for their resilience.

Besides the strong rise in household consumption, government consumption was just as strong, as the Australian Bureau of Statistics said:

Government final consumption expenditure and Household final consumption expenditure both increased 0.8% in seasonally adjusted terms. The main contributors to growth in Household final consumption were Food (up 1.1%) and Furnishings and household equipment (up 1.9%). The sole negative contributor was Electricity, gas and other fuel (down 0.7%).

A surprise was the strong performance in the non-farm economy: The ABS said that non-farm GDP grew 1.1%; the terms of trade fell 7.4% (thanks to the sharp fall in coal and iron ore contract prices) and as a result Real gross domestic income fell 1.1%.

“In seasonally adjusted terms, the main positive contributors to expenditure on GDP were New machinery and equipment (0.5 percentage points) and Household final consumption expenditure (0.5 percentage points).

“The largest negative contributors were New building construction (-0.3 percentage points) and Imports (-0.5 percentage points), ” the ABS reported.

In industry terms (seasonally adjusted) the ABS said property and business services contributed 0.4 percentage points to GDP growth, while Agriculture, forestry and fishing detracted 0.4 percentage points.

The ABS said that in terms of the states, NSW was flat in the June quarter, South Australia was the strongest, up 0.8%, followed by Victoria, up 0.6%. Queensland was the weakest, down 1.2% and Northern Territory was down 3.4%.