The Australian Bureau of Statistics said on Wednesday gross domestic product expanded 1.1 per cent in the first three months of the year, compared with a revised 0.7 per cent in the final 2015 quarter.

The figure was even better than the hurriedly revised economists' estimates after a much stronger contribution from net exports, revealed on Tuesday, had pushed GDP forecasts up from 0.6 per cent on Monday to 0.8 per cent just ahead of Wednesday's data.

The Australian dollar immediately spiked about half a US cent to US72.90. In late local trade it was fetching US72.61.

However, as expected, the data also showed that Australia remains in a so-called "income recession", whereby residents' share of expanded production continues to shrink because of falling company profits, lower government revenues and flat wages.

Meanwhile, year-on-year headline growth accelerated from 2.9 per cent to 3.1 per cent, its fastest pace in almost four years.

Real net national disposable income remained weak, expanding just 0.2 per cent for the quarter, to be down 1.3 per cent year-on-year. On a per-capita basis, it shrunk for the eighth quarter in succession.

"There is a lot of confusion about the Australian economy because production is strong but incomes are weak," said economist Andrew Charlton from AlphaBeta.

"That's why we can simultaneously have record export growth with falling company profits, strong employment growth with low wages, and strong GDP growth with a crippled budget deficit," he said

Production growth was driven by a surge in net export volumes, helped by the low dollar, a drop in capital equipment imports, stabilising prices and good shipping weather.

"The economy is showing a transition from mining-based investment to production, with new engineering construction falling for the 10th consecutive quarter and mining production growing [by] 6.2 per cent," the ABS said. Mining-related products significantly contributed to the 4.4 per cent growth in exports."

The ABS said service-based industries such as finance, retail trade, accommodation and food services, and arts and recreation were the other main contributors to growth.

"This is consistent with the steady growth in service to households," it said.

Prices, however, remained weak, with the CPI down 0.2 per cent for the quarter and the terms of trade - the value of exports against the cost of imports - down 1.9 per cent.

This could still force another cut to the cash rate by the Reserve Bank of Australia this year, despite the robust growth.

Chances of an August move fell to about 50 per cent, from 60 per cent before the GDP data, and to 80 per cent by the end of the year, from more than 100 per cent, according to interest rate futures, and most economists still expect at least one more rate cut this year.

"As the RBA is more focused on inflation than growth, today's data probably won't prevent it from cutting interest rates to 1.5 per cent, but not until the August meeting at the earliest," said Capital Economics' chief economist for Australia Paul Dales.

Westpac economist Andrew Hanlan noted better-than-expected consumer spending, but said capital expenditure remained a drag on the economy. 

"The consumer picture, while not strong, is relative robust," he said. "However, investment remains a weak spot and the upswing in non-mining investment remains elusive."

Financial markets are still betting the RBA is likely to cut once more this year.

"The Reserve Bank is definitely looking at inflation rather than GDP," says Adam Boyton, chief economist at Deutsche Bank. "And looking at these figures you can see the measures of inflation contained within the GDP report are very weak."

With Jessica Sier