Treasury Secretary Ken Henry says federal budget forecasts may have been too pessimistic, but that at this stage it is too early to tell.
In last month's budget, economic growth was forecast to be flat in 2008/09, before contracting by 0.5 per cent in 2009/10.
"Of course, the March quarter was stronger than we had expected,'' Dr Henry told the Australia Council of Local Government in Canberra.
"It means we are now thinking that gross domestic product (GDP) growth in the present year, 2008/09, will be somewhat stronger, but it will still be weak relative to trend.''
March quarter GDP unexpectedly rose 0.4 per cent, driven by $12 billion of government cash handouts and record interest-rate cuts that took the cash rate to a 49-year low of 3 per cent, and meaning Australia was able to avoid a second quarter of negative growth that generally defines a recession.
The International Monetary Fund (IMF) on Wednesday upgraded its growth forecasts for Australia to a contraction of 0.5 per cent in 2009, before growing 1.5 per cent in 2010.
This compared with a previous forecast for a 1.4 per cent contraction this year and 0.6 per cent growth next year.
"It may be that there is some upside to our forecasts, but really it is too early to tell,'' Dr Henry said.
Business investment hard hit
He said public investment, including infrastructure building, would compensate for reduced business spending.
"Business investment is going to be hard hit in the next couple of years,'' Dr Henry said. "The increase in public investment is forecast to make a very strong contribution and will help ensure total investment in the Australian economy remains up around historically high levels.''
Terms of trade, a measure of export income, for the world's biggest shipper of coal and iron ore will also remain strong, Dr Henry said.
"That means that terms of trade will be supportive of strong income growth in Australia in the next growth cycle."
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