* Q1 GDP rises 0.4 pct qtr/qtr, beating forecasts of +0.2 pct
* Australia avoids a technical recession, unlike many others
* Aussie dlr firms as growth lessens need for more rate cuts
By Wayne Cole
SYDNEY, June 3 (Reuters) - Australia's economy expanded last quarter as the best trade performance in 48 years helped offset a slump in business and housing investment, putting it among the very few developed nations to have avoided a recession.
The Australian dollar hit eight-month highs as the economy's resilience was seen lessening the need for further easing from the Reserve Bank of Australia (RBA).
"We've dodged the recession bullet for the time being," said Michael Blythe, chief economist at Commonwealth Bank. "It's stronger than the RBA was expecting, and it reinforces the 'on-hold for the time being' message."
Wednesday's report showed GDP, the value of all goods and services, rose 0.4 percent in the three months to March, from the previous quarter when it fell a revised 0.6 percent. Recession is typically defined as two consecutive quarters of contraction. Any growth at all was a rare performance among rich nations. The U.S. economy contracted by around 1.6 percent in the first quarter, Canada by 1.4 percent, Germany 3.8 percent and Japan 4.0 percent.
"The Australian economy has outperformed every other advanced economy in the March quarter, recording positive growth in the face of a savage global recession," Australian Treasurer Wayne Swan said in a statement.
For a graphic see:
http://graphics.thomsonreuters.com/069/AU_GDP0609.jpg
Australia's outperformance owes much to aggressive policy action from the central bank, which cut its key cash rate by 425 basis points in just seven months, taking it to a record low of 3.0 percent. The Labor government also weighed in with over A$52 billion in fiscal stimulus.
The central bank skipped a chance to cut again at its June policy meeting on Tuesday, pointing to stabilisation in the global economy and pockets of improvement at home.
But it also emphasised that, with inflation expected to slow for the next two years, there was scope for further cuts if needed. That was seen as a warning to markets not to bet on hikes too early, particularly given unemployment was set to rise.
SOME CAVEATS
"We retain the view that the RBA's easing cycle is not yet over, but officials will be in no rush to deliver," said Stephen Walters, chief economist at JPMorgan.
"RBA officials probably want to retain sufficient policy ammunition, in order to be able to deliver more stimulus as the jobless rate rises," he added.
Indeed, analysts were quick to add caveats to the GDP report, noting Australia only escaped recession because imports were slashed as firms cut back on investment. The drop in imports added a huge 1.6 percentage points to GDP in the quarter, but actually reflected weaker demand.
In contrast, business and housing investment lopped 1.1 percentage points from growth in the first quarter, with miners leading the retreat in the face of crumbling global demand. Even the government added a note of caution: "The Australian economy is not out of the woods yet, and the full impacts of this global recession still have some way to run," Swan said.
Household spending benefited from lower mortgage costs and government handouts, adding 0.3 percentage points to GDP. But overall, spending in the domestic economy fell 1.0 percent in the quarter, on top of a 1.3 percent decline in the previous quarter, making it a home-bred recession.
"We'd still characterise the economy as being in recession given the rise in unemployment and weakness in demand," said Scott Haslem, chief economist at UBS.
"But it's a good outcome compared with most other economies and recent housing and retail data support our case for a return to economy-wide growth in the second half of 2009," he added. There was another promising sign on demand on Wednesday with industry figures showing new vehicle sales bounced 4.5 percent in May after a string of weak months. [nSYD469083].
(Editing by Mark Bendeich)