Treasurer Peter Costello remains upbeat

The economy expanded just 0.2% in the first quarter of 2004, compared to 1.3% in the last three months of 2003, the Australian Bureau of Statistics said.

But the strengthening global economy should improve Australia's performance, Treasurer Peter Costello said.

Record highs for the local currency against the US dollar hurt exports.

Falls in the US dollar helped push Australia's currency to a seven-year high of 80.05 US cents in February 2004.

"The world economy is moving out of recession, you can't sell your exports to a world economy which is in recession," said Mr Costello.

"The strengthening international recovery should see Australia's net export performance improve in the period ahead, assisted by the recent depreciation in the exchange rate," he added.

Healthy picture

But Australia's economy remains robust overall. It grew 4% in 2003, and joblessness hit a 14 year low in March.

The housing boom is slowing

A slowdown in Australia's housing boom was another reason for slacker growth, a fact which was welcomed by the central bank's deputy governor, Glenn Stevens.

The Australian central bank kept interest rates unchanged at 5.25% on Wednesday.

It twice raised rates in late 2003 - the last time was in December - to engineer a soft landing for the overheating housing market.

"Consumer demand is not advancing at the same pace this year as it did in the second half of 2003," said Mr Stevens.

"It is hard to imagine a more benign background for the aftermath of a credit and asset boom," he added.

Year-on-year, the economy was 3.2% stronger in the first quarter of 2004, missing economists' expectations for a 3.6% rise.

The Australian dollar was worth roughly 70.40 US cents on Wednesday afternoon.