Australia's national economy is showing signs of growth which is largely attributed to the commodity boom. Government stimulus spending, however, still drives the economic growth.

The March quarter showed a 0.5 per cent economic growth recorded at the national accounts. It was noted to fall below the long-term trend with a plunge on private sector investment and slower export production.

March quarter also showed that households were cautious about spending, especially on food and alcohol. But most of the spending went to clothing and matriculation fees.

The bulk of growth was noted in the commonwealth spending. Growth jumped to 43.3 per cent in the month as spending activity went to schools, housing and infrastructure. State government spending was noted to have 16.8 per cent increase.

Federal Treasurer Wayne Swan said that the government's infrastructure investment is continuing to support demand. "The government is providing necessary targeted support to those parts of the economy where it is most needed," said Swan.

The accounts showed export prices rising by 4.4 per cent relative to import prices fueling the commodity boom. With companies hiring again, households seem to brace up its purchasing power.

Wage and salary rose to 1.7 per cent in the quarter leading to increased interest rates.

Company revenues were noted to be higher with profits up by 0.8 per cent.

Tony Meer, Deutsche Bank chief economist, said that the recovery only highlighted the looming challenges for the economy.

"The Reserve Bank is obviously worried that consumer price inflation hasn't fallen far enough to be comfortable with its medium-term outlook," said Meer. Inflation jumped by 0.9 per cent in the March quarter.

RBS chief economist Kieran Davies said that the economy will likely regain momentum.

Strongest growth was recorded by South Australia with 1.6 per cent growth.

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