The better than expected performance came one day after the Reserve Bank of Australia (RBA) cautioned that growth "is expected to have slowed in the March quarter." That, along with disappointment in the country`s current account, prompted some economists to expect a quarterly economic contraction.
Even as Australia avoided a contraction, economists said underlying weaknesses still persist in the resource rich nation.
"Consumer spending was quite soft in the quarter, business investment is still pretty soft, we still got mining investment contracting, not a lot of uptake in non-mining investment, public demand I think is down as well. We did escape a negative number which is good news but really we`re seeing broad based weakness in both business and consumer spending at the moment," David Bassanese, chief economist at BetaShares Capital, said on CNBC`s "Squawk Box."
"(The Australian economy) probably needs a helping hand. The problem is interest rates are already very low. The Sydney and Melbourne property markets are still red hot so the banks loath to cut rates and really just sort of overly encourage these strong price gains in those property markets."
The RBA has kept its benchmark rates at a record low of 1.5 percent since August last year. Bassanese said any economic boost should come be the in form of fiscal policies, which are "not coming quickly enough."
Economists said growth would likely improve in the second quarter, as economic activity was hindered by Cyclone Debbie earlier in the year. However, some feel that RBA`s projection for growth to climb to "a little above 3 percent" in the next few years may be too optimistic.
"Overall, even if GDP growth were to rebound in the second quarter, we doubt it will be more than 2.2 percent for the year as a whole . Subdued growth on its own won`t prompt more rate cuts, but it will prevent the RBA from raising interest rates until 2019," Paul Dales, chief Australia and New Zealand economist at Capital Economics, wrote in a note.
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