The Australian economy gathered pace in the final three months of 2010 against the backdrop of devastating floods that inundated the coal-rich state of Queensland.

The national accounts show that gross domestic product (GDP) grew 0.7 per cent in the December quarter 2010, after growing 0.1 per cent in the three months to September.

The growth was driven by a 0.8 per cent contribution to growth from changes in inventories, a 0.4 per cent contribution from final consumption expenditure, and a 0.3 per cent contribution from gross fixed capital expenditure on machinery and equipment, the Australian Bureau of Statistics said.

The industry that drove growth in the December quarter was professional, scientific and technical services with a 0.3 per cent contribution to growth, and finance and insurance services with 0.2 per cent contribution to growth.

While the floods have had some effect on the December quarter estimates, ABS said it is expected that the more significant economic impact of this and floods in other states will be reflected in the GDP estimates for the March quarter 2011.

Treasurer Wayne Swan said the latest GDP figures were a very solid result given that economy was already being hit by extreme weather in late December.

"Of course, this will be much worse in the first quarter of 2011," he told reporters in Canberra on Wednesday.

"There will be a big hit to growth in the March quarter, around 1 per cent, but then you have a rebound that comes around in the subsequent quarters."

"It is a heavy toll on the budget in terms of reconstruction and also lower activity."

Treasurer Swan, however, reiterated Labor was still determined to return the budget to surplus in 2012/13.

The Australian dollar was weaker after the report. The Australian dollar extended its slide to 100.9 US cents in recent trading, while stocks ended the day down about 0.5 per cent.