SYDNEY — Australia’s economy expanded at the fastest annual pace in four years last quarter to clinch a remarkable run of 25 years without a recession, driven by a surge in public investment to build roads and railways and continued strength in resource exports.

Gross domestic product (GDP) rose 3.3 per cent in the year to June, the most since the second quarter of 2012 and up from around 2.9 per cent the first quarter.

The value of all goods and services rose 0.5 per cent in the second quarter compared to the first quarter, when it grew by a downward revised 1 per cent.

The S&P/ASX 200 index closed 0.2 per cent higher, or 10.6 points, at 5,424.2. The benchmark ended 0.3 per cent lower on Tuesday.

Still, yesterday’s data is only a rear-view snapshot of Australia’s economy, in a period when iron ore gains and the jobless rate largely held their ground.

“The government has come to the rescue,” said Mr Paul Dales, chief Australia and New Zealand economist at Capital Economics. “Things would be weaker if it wasn’t for this secret fiscal stimulus.”

The economy has been bolstered by a surge in government spending, particularly at the state and local government levels, as investment by industries outside mining started to show green shoots last quarter. This suggests the Reserve Bank of Australia’s (RBA) efforts to steer a handover to non-mining sources of growth could be working after years of easy policy and a 25 per cent depreciation in the currency from its mining boom peak.

Yesterday’s data saw the economy’s annual expansion exceed its 30-year average of 3.2 per cent. It also showed: The household savings ratio held at a revised 8 per cent; terms of trade, or export prices relative to import prices, rose 2.3 per cent quarter-on-quarter; and household spending rose 0.4 per cent, adding 0.2 percentage points to growth.

“Generally the story was not too far from expectations but there is a little bit of soft undertone to household consumption. There is a question of whether consumer spending is losing steam. If that is playing out that will be a concern for the RBA,” said Mr Ben Jarman, economist at JP Morgan in Sydney.

“Domestic demand until today’s numbers were looking quite reasonable. I guess the concern in today’s numbers is that you’re seeing a little of wavering in that household story. Before the data we thought the RBA might look at cuts next year but if there is any kind of further wobble in the activity data, particularly consumption, then that does open the door for a cut in the near term.”

The central bank last month lowered the benchmark for the second time since May to a record-low 1.5 per cent as the disinflation that has engulfed much of the developed world spreads Down Under.

Australia’s transition is relying on industries like tourism and education, which are sensitive to the currency’s fluctuations. Uncertainty over the United States Federal Reserve’s plans to tighten has propped up the Aussie against the US dollar, as well as zero and negative rates and vast bond-buying programmes in Europe and Japan that make even Australia’s record-low rate attractive. The Aussie is up more than 10 per cent since mid-January.

Australia’s underemployment rate is also running high, as a surge in part-time workers —many of whom want more hours — flatters the jobless level. RBA Governor Glenn Stevens, in his final policy statement after holding the benchmark rate steady on Tuesday, signalled some doubts on the labour market. “In Australia, recent data suggest that overall growth is continuing, despite a very large decline in business investment, helped by growth in other areas of domestic demand and exports. Labour market indicators continue to be somewhat mixed, but suggest continued expansion in employment in the near term.” Agencies