Aussie recovery 'a puzzle for analysts'

There are grounds for optimism about the Australian economy, says Treasury Secretary Ken Henry, but he warns against prematurely declaring the "war is over".

Speaking to an Australian Industry Group conference yesterday, Dr Henry said it was still a little unclear why the economy was "behaving" better than most had been expecting.

"There are grounds for optimism, there's no doubt about that," he said.

"As the [Reserve Bank of Australia] governor said in testimony last week, it does appear as if the Australian economy is behaving a little better than people were thinking in the latter part of last year and the early part of this year."

Dr Henry said observers weren't sure why Australia was exceeding expectations.

"It's fair to say that nobody fully understands the reason for that somewhat better economic performance," he said.

"We're not rushing to judgment on this matter just yet.

"It does seem clear that the measures taken to date, both the monetary policy response and the fiscal policy response, have had quite an impact in supporting aggregate demand."

But he stressed the need for caution despite some signs for hope.

"We would want to be a little careful not to prematurely declare that the war is over," Dr Henry said.

While the Australian economy was resilient compared to the rest of the world, Dr Henry said: "[But] the rest of the world is not out of the woods yet."

"It's possible that there will be a second shockwave," he said.

"There's no reason to think it will be anything like the first shockwave in size and intensity, it won't be, but there could be a second shockwave to hit us and that too could have implications for future growth.

"So I think we should be a little cautious to rush to declare victory just yet."

Treasury is preparing for the mid-year economic and fiscal outlook, which the Rudd Government will release later this year.

There are widespread expectations the Government will have to revise upwards its economic forecasts, given the unexpected signs of optimism.

The revised forecasts would provide an opportunity to "take stock" of the present situation, Dr Henry said.

"We're spending the present period analysing in some depth the reasons for the somewhat better performance that has been noted on a number of indicators," he said.

- AAP