Australia may yet suffer a recession, but it is unlikely to be a deep or prolonged affair.

New data released on Wednesday suggested the economy may record two consecutive quarters of negative growth - the definition of a technical recession - in the June and September quarters, before shifting into recovery next year.

The annualised growth rate of the Westpac-Melbourne Institute leading index released on Wednesday showed a negative 3.5 per cent reading in April, well below its long-term positive trend of 2.8 per cent.

However, the index, which indicates the likely pace of economic activity three to nine months into the future, is showing a significant improvement from the contractions of 5.1 per cent in March and the 6.1 per cent in February, being the lowest since 1982.

“Its current pace is still consistent with the Australian economy contracting in the June and September quarters, but if this rate of improvement in the growth rate continues we can look to positive growth in the first half of 2010,” Westpac chief economist Bill Evans said.

The recently released national accounts for the March quarter showed the economy unexpectedly grew by 0.4 per cent, avoiding a second quarter of contraction.

Westpac is forecasting the economy to contract by 0.6 per cent in the June quarter and at an annualised pace of about 1.5 per cent in the second half of 2009.

It then expects the economy to recover to a one per cent growth pace in 2010.

The leading index is a compilation of share price movements, overtime worked, dwelling approvals, US industrial production, corporate profits and material prices.

National Australia Bank senior economist David de Garis agreed there is still a “sombre outlook” from this series, “but marginally less so”.

Other new data was equally bleak, showing home building has slumped to its lowest level in eight years, with work starting on just under 31,000 properties in the first three months of the year.

The last time so few homes were being built was in June 2001, when the construction sector was recovering from the introduction of GST a year earlier.

“This latest downward slide will only exacerbate an already chronic shortfall of housing, particularly in NSW,” Master Builders chief economist Peter Jones said.

Bureau of Statistics data on dwelling start-ups showed a 4.0 per cent seasonally adjusted decline in the March quarter compared to the previous three months, double the expectations of economists.

Start-ups stand at a hefty 22.5 per cent lower than a year earlier.

But economists believe this could be the nadir for home building, with dwelling approvals having increased in recent months, aided by low interest rates and demand from first-home buyers, who are taking advantage of a more generous grant from the federal government.

“With a recovery set to unfold, Master Builders is predicting a 25 per cent increase in annualised dwelling starts by this time next year as the investor-driven segment of the market joins in,” Mr Jones said.

Housing Industry Association senior economist Ben Phillips said the growth of housing over 2009 and beyond will play a pivotal role in maintaining employment in many industries that rely on a strong market.

“The fact that starts dropped so far over the past 12 months highlights just how important the first-home buyer stimulus is in 2009 and just how urgent the need is to implement the plan to construct new public and community housing dwelling,” Mr Phillips said.

This, he said, will generate a “multiplier effect” for private dwellings along the way.

AAP