Treasury secretary Ken Henry sees grounds for optimism about the Australian economy but warns a second global shockwave may still be lurking around the corner.

While there were signs on today that the Japanese economy was climbing out of recession, the Treasury boss cautioned against declaring the global downturn over just yet.

"We would want to be a little careful not to prematurely declare that the war is over,'' he told an Australian Industry Group conference at Parliament House.

While the Australian economy was resilient compared with the rest of the world, Dr Henry warned the international economy was "not out of the woods yet''.

"It's possible that there will be a second shockwave,'' he said.

"There's no reason to think it will be anything like the first shockwave in size and intensity - it won't be - but there could a second shockwave to hit us and that too could have implications for future growth.''

There was some good news in the international outlook today, with the world's second biggest economy - Japan - shifting to growth for the first time in more than a year.

New data showed the Japanese economy expanded by 0.9 per cent in the first three months of the year, joining Germany and France in moving out of recession.

Despite his caution, Dr Henry agrees with assessments that the Australian economy is in better shape now than many had been expecting at the height of the financial crisis.

"There are grounds for optimism, there's no doubt about that,'' he said.

Dr Henry admits the better-than-expected performance is somewhat puzzling, prompting Treasury to "take stock'' and undertake in-depth analysis before the release of revised forecasts later this year.

Some credit, he says, needs to go to the fiscal and monetary policy measures undertaken to stimulate the economy.In particular, cash payments to households in December and another round this year had helped support the retail sector.

Retail turnover had been sluggish for much of the latter part of last year, but since the stimulus retail sales had grown by more than five per cent to the end of June.By contrast, retail sales in comparative developed nations were continuing to fall.

When the downturn was over, Dr Henry predicted Australia would be able to take advantage of a "rebalancing'' of the flow of capital around the world.Australia, he suggested, may attract a greater share and total amount of capital, as the "herd-driven'' investment culture of the past disappeared.

"The Australian economy will be seen as possessing the best of the qualities of government and flexibility in the developed world, while also offering an abundance of real investment opportunities only found usually in the developing world,'' Dr Henry said.

He forecast China would continue to play a "key role'' in Australia's economic prospects for many years to come.

"China and India are only in the early stages of catching up with the living standards of the developed world,'' he said.

"This process could have a very long way to run yet, (and) that catch-up presents substantial opportunities for our economy.''

This would continue the positive momentum for the nation's terms of trade, too, which remained above their 50-year average.

"It's a shift that will continue to be reflected in structural change in the Australian economy in the next expansion phase,'' Dr Henry said.

AAP