Victoria the nation's economic engine

The National Accounts show that Victoria contributed 0.4% to domestic demand growth in the quarter, almost half of the nationwide total of 0.9%.

Western Australia, which has been riding the mining boom and had been regarded as Australia's economic powerhouse, contributed 0.3%. NSW became a drag on the nation's economy in the quarter as its economic activity contracted 0.1%.

Victorian Treasurer John Lenders hailed the news, saying it reflected strong growth in private business investment, in housing investment and in public investment.

Federal Treasurer Wayne Swan described the national result as " a solid number, especially considering the global challenges that we are facing and what is happening elsewhere in the developed world".

Australia's economy grew 0.3% in the June quarter, well down on the 0.7% recorded in the previous quarter but enough to generate a respectable annual growth rate of 2.7%.

While consumer spending dipped slightly, losing 0.1% in its first decline in 15 years, business investment surged, climbing 4.6% in the quarter. Public investment - much of it by state governments - climbed 2.4%.

"Growth is rebalancing away from household consumption towards business investment and exports," said TD Securities economist Joshua Williamson. "It's in line with the Reserve Bank's script."

"For the Reserve Bank it will be pleasing; it confirms the economy didn't fall off a cliff," said ANZ economist Katie Dean.

Some parts of consumer spending were hit in the June quarter, especially spending on transport, which slipped 2% in real terms, attributed to the higher price of petrol.

But the income available to Australians kept rising. The accounts show that Australia's terms of trade, a measure of international buying power, soared 13% - the biggest quarterly rise in 35 years.

The statisticians' preferred measure of economic welfare, "real net national disposable income", climbed 3.6% in the quarter and 6.6% over the year due to improved terms of trade.

More of the extra income flowed through to profits than wages. Profits hit a record 28.4% of national income, while a broad measure of wages slid to 52.4%, its lowest level since 1965.

Mr Swan said Australia seemed to be "defying gravity", with five developed economies seeing zero or negative growth in the period. Japan was down 0.6%, Germany 0.5%, France 0.3%, Italy 0.3% and the UK zero.

Shadow treasurer Malcolm Turnbull said the results were a tribute to the resilient economy left by the Coalition.