Gross domestic product for the March quarter grew 0.4 per cent, the Australian Bureau of Statistics said, following a revised 0.6 per cent decline in the final three months of last year. Two straight quarters of a shrinking economy are the textbook definition of a recession.

Analysts had expected the Australian economy to have shrunk 0.2 per cent in the first quarter, leading to back-to-back quarterly falls. The last time Australia experienced a technical recession was in 1991.

Excluding the farm sector, the economy grew by 0.5 per cent in the first quarter.

The Australian dollar jumped a quarter of a US cent, rising to 82.2 US cents.

"It's a very positive outcome," said ICAP economist Adam Carr. "It's certainly positive for sentiment."

"It suggests the economy is markedly healthier" than originally expected, he said. "Going forward there is every reason to believe the GDP outcomes are going to be stronger.

"I don't think we're out of the woods yet," Mr Carr warned. "I still think the unemployment rate is going to rise but the data suggest the unemployment rate will be more modest."

The March quarter's growth was helped by stronger-than-expected exports recorded in trade numbers yesterday, triggering a sharp narrowing of Australia's current account deficit to $4.6 billion from $6.5 billion in the fourth quarter of 2008.

Since the acceleration of the global financial crisis late last year, the Reserve Bank has cut 425 basis points from the official interest rate, chopping about $1000 off monthly mortgage repayments as it moved to ease the financial outlooks of Australians and encourage more borrowing.

At the same time, the Federal Government has announced three rounds of stimulus plans aimed at keeping Australians shopping, buying homes and expanding their businesses.

Today's news contradicts comments already made by Prime Minister Kevin Rudd and Reserve Bank governor Glenn Stevens, both of whom have said the nation is in recession. Technically, it's not.

On a year-on-year basis, the economy grew 0.4 per cent in the January-March quarter, showing the relative strength of Australia compared to the US, where the economy weakened by 2.5 per cent in the year to March.

The Eurozone dropped 4.6 per cent year-on-year, while Japan withered by 9.7 per cent over the same period. Analysts surveyed by Bloomberg predicted a 0.4 per cent year-on-year decline in Australia.