Treasurer Joe Hockey has cautiously welcomed the latest GDP figures, saying they are a "pleasing set of numbers" that show a "real and building momentum" in the economy, despite a small slowdown in economic activity in the past three months.
But he acknowledged the unemployment rate was "still too high" and economic growth remained weak overall, as Reserve Bank governor Glenn Stevens warned record house prices in Sydney and Melbourne were starting to crimp monetary policy.
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Business Week: Is Hockey happy?
Sloppy Joe, Happy Joe and Blind Joe. Michael Pascoe comments on the state of the economy according to the federal treasurer.
The economy grew by just 0.5 per cent in the June quarter, bringing annual growth to 3.1 per cent, with most of that growth coming from firms stockpiling their goods in the face of falling exports.
The biggest drivers of the increase in GDP came from a boost to inventories (0.9 percentage points), household consumption (0.3 percentage points) and private fixed capital formation (0.3 percentage points).
The main detractors were net exports (-0.9 percentage points) and public gross fixed capital formation (-0.2 percentage points).
Mr Hockey said economic growth in the first half of the year was still stronger than expected and this was consistent with a boost to consumer and business confidence.
"It is a bit better than was expected in the Budget and it's consistent with forecasts from the Reserve Bank," Mr Hockey said.
"[But] I want to emphasise that there's still more to do. We have growth still below trend and the unemployment rate is still too high.
"What we're seeing is momentum building in the non-mining side of the economy and this is a welcome trend, but we have to do more to drive the economy and everything we are doing is focused on delivering our Economic Action Strategy."
The government was glad to have abolished the carbon and mining tax, he said, and to have signed new free trade agreements with Korea and Japan.
"And we hope to sign one with China before the end of the year," he said.
Economists said the weak GDP figure showed the economy was only part of the way through the process of unwinding its elevated levels of capital expenditure associated with the mining boom.
"But the transition seems to be going well," Barclays' chief economist Kieran Davies said.
"Outside of resources things seem to be improving, with business surveys suggesting things will pick up further."
"I imagine the Reserve Bank will be pretty happy with how things are playing out so far. The only thing which is causing them concern ... is the strength in house prices."
The GDP figure came as ANZ chairman David Gonski warned that inflated housing prices could not go on forever and the market would eventually experience a correction.
The former Future Fund chairman said ANZ and all the big banks were "very aware of history" when it came to financial lending in the residential mortgage market.
"There will come a time when there will be a correction," he told the Australian British Chamber of Commerce.
"The fact is, anyone who believes prices always go up is, I think, a fool."
Phil O'Donaghoe, Deutsche Bank economist, said the GDP figure masks a lot of what is actually happening in the economy, saying income growth provides a better guide to the health of the economy.
"While GDP rose 0.5 per cent in the June quarter, real gross domestic income actually fell 0.3 per cent," he said.
He said real gross domestic income takes into account the terms of trade, so it includes the falls in commodity prices.
"That is telling you a lot more about labour demand and the unemployment rate than GDP," he said.
"If you really want an indicator of what's driving demand and what the RBA's concerned about, it would be those domestic income figures."
On Wednesday, Mr Hockey poured scorn on claims by the Financial Services Council - the super industry's biggest lobby group - that workers will lose $128 billion in lost savings over the next decade from the changes.
"The suggestion that people are losing ... $128 billion, I completely reject, because they're getting it in their pockets," Mr Hockey said.