Gross domestic product (GDP) rose 1.3 per cent in the first quarter, more than double the 0.5 per cent increase forecast. Growth was a robust 4.3 per cent higher compared with the first quarter of 2011, the fastest pace in more than four years.
Concerns about growth globally, and particularly in China, will continue to haunt the outlook but analysts were cheered that the economy had more momentum than anyone had supposed.
"Rumours of the economy's death have been totally exaggerated," said Michael Blythe, chief economist at Commonwealth Bank of Australia.
"It does tell you we had a decent amount of momentum in the run up to the latest round of the European woes, and it's not a bad place to be in."
The Australian dollar jumped two-thirds of a cent on the upbeat data to $0.9844. Interbank futures slid as the market scaled back expectations for how far and how fast interest rates would be cut from here.
Only the day before, the Reserve Bank of Australia (RBA) had cut rates for a second month running, in part because domestic growth has disappointed while the global outlook turned ever darker.
"For the RBA it's all about forward-looking risks and Europe's the main source of those," added Blythe. "But these sorts of numbers would suggest they won't be looking to aggressively cut rates from here unless something really does go wrong in Europe."