Australia's gross domestic product grew at a better than expected 0.4% per cent in the first three months of 2009, according to the Australian Bureau of Statistics. This unexpected positive figure means that we have avoided two consecutive quarters of economic contraction, the definition of a ''recession''.

We are the only major Western economy to avoid recession in the current global economy depression.

Notable positive figures include a lift in the contribution of exports to GDP, up from 1.7% the previous quarter to 2.2%. Government spending also contributed, rising 0.3% while consumers spending rose 0.6% from previous quarter, adding 0.3 percentage points to GDP.

On the negative side Business investment dropped 6.1%. It has been widely reported that this is due to businesses facing pressure to cut costs due to dim prospects for earnings growth. In reality many small businesses cannot fund expansion because the banks have largely shut down lending in this area. There is little chance of us seeing growth in investment by businesses until the sector receives support from our banks, which it should be noted are receiving massive support from taxpayers, in the form of the Government guarantee on deposits and interbank lending.

The data also showed a fall in the commodity prices agriculture, mining and construction.

Stimulus packages and the Reserve Banks cut in the cash rate from 7.25% in September to 3%, a 49-year low in April, were a major factor in this strong result.

The government has so far released two stimulus packages to assist the economy. The first an A$10.4 billion injection last year, and a further A$42 billion in February this year. These packages were aimed at providing cash support for lower income families and for infrastructure projects. The second round of cash handouts were paid out in April and are expected to have a positive affect on retail expenditure figures next quarter.

We have already seen a significant rally in the share market, indicating that investors see better times ahead. The really big issue for the economy seems to be that consumer spending may weaken, as the one-off government payments are used up and rising unemployment reduces capacity. The unemployment rate reached 5.4% in April, from 3.9% two months ago and the Government maintains its projection of 8.5% unemployment by the middle of 2010.

The Reserve Bank has indicated a willingness to support the economy through further interest rate cuts, however this will not directly affect the unemployment problem. The vast majority of the Australian workforce is employed by small businesses and it is these businesses. These are not the businesses that we, as investors, support with capital. They are reliant on private funds for capital and debt funding from banks. While these businesses receive no support from the banks it will be very difficult for them to be the strong driver of economic prosperity that they have traditionally been. There has been no action from the Government to encourage (Government supported) banks to change their attitude towards small business lending and there is no economic reason for them to change their current policies, given that they are enjoying a period of very little competition.

Investors should be wary of becoming too excited about the immediate prospects for our economy. It remains very difficult for anyone to judge what is going to happen next. It is very easy to make predictions, because if you are wrong, well so are most other forecasters, but if you are correct it is something you can spruik for years to come. Beware listening to forecasts and don’t think anyone has the answer.

A conservative approach in terms of maintaining a significant allocation of cash, both as a defensive measure and to allow meaningful action once there is more certainty in the market/economy, seems a sensible stance. Those that were heavily invested in growth assets prior to the financial crisis should think very hard about what they should do. It is a common mistake for investors to expose themselves to the worst of investment markets and then leave before there is a chance for their investments to recover (please read article on asset allocation) it would seem sensible for people in such as predicament to increase their exposure to cash and/or fixed interest by targeting a high percentage of new funds into these asset classes.

It is also a time where things within your control should be looked at carefully, particularly the costs involved in managing your investments. Find out how Rebate Financial Services can save you money on your investments and superannuation Here.