Consumer confidence jumped the most in 22 years as Australians took heart from the release of better than expected economic growth figures for the first quarter of 2009.
The Westpac-Melbourne Institute index of consumer sentiment rose 12.7 per cent to 100.1 points, seasonally adjusted, from 88.8 points in May.
The index rose above 100 point level for the first time in 17 months, the point that divides optimists and pessimists.
Westpac chief economist Bill Evans said the result was "truly remarkable".
"It is the second largest recorded increase in the index since the survey began in 1974 and the largest increase in the last 22 years," he said in a statement on Wednesday.
"It is very likely that the dominant factor behind this extraordinary rise was the release of the March quarter national accounts last Wednesday."
Gross domestic product expanded by 0.4 per cent in the three months ended March, after contracting by 0.6 per cent in the December quarter.
The positive result allowed Australia to avoid the technical definition of recession, which is two straight quarters of negative growth. Business confidence is also on the up, after a reading out yesterday posted the biggest gain in eight years.
"That result was widely hailed in the media as indicating that Australia had avoided a recession," Mr Evans said.
Meanwhile, economic stimulus from low interest rates and federal government handouts also encouraged consumers, as did a fall in the jobless rate in April to 5.4 per cent, from 5.7 per cent in March.
"So on the assumption that Australia had avoided a recession and the worst had passed, consumers have become much more confident," Mr Evans said.
However, Mr Evans warned the positive reaction in June may turn out to be premature.
"The March quarter national accounts still portrayed a very weak economy with domestic spending falling by one per cent, the sharpest fall since December quarter 2000," he said.
"Overall, GDP growth was positive because imports contracted by an extraordinary seven per cent allowing net exports to contribute 2.2 percentage points to GDP growth and ensuring a positive result.
"We expect this net export effect to partially reverse in the next two quarters, with GDP registering consecutive negative quarters of growth a re-establishing the `recession' label.
Still, the June consumer sentiment result was the best reading in 17 months.
"The index is now at its highest level since January 2008. when the unemployment rate was 4.3 per cent and the economy was growing at a four per cent pace," Mr Evans said.
The Reserve Bank of Australia left interest rates unchanged in June at a 49-year low of three per cent, and was unlikely to cut the cash rate when its board next meets on July 7, Mr Evans said.
"This result only strengthens the case for rates to remain on hold," Mr Evans said.
Although, uncertainties related to the sustainability of the current stability in global financial markets, the negative outlook for the Australian labour market and pressures on bank funding costs will encourage the RBA to maintain an easing bias "for some time to come."
AAP, with Bloomberg