Australia's economy is showing signs of picking up momentum, with a stronger than expected GDP growth of 2.5 per cent over the past year.

It is a marked acceleration from the June quarter's disappointing annual growth rate of 2 per cent and the fastest economic growth in 18 months, but still below the economy's long-term trend.

GDP expanded by 0.9 per cent in the September quarter against market expectations of 0.8 per cent.

The stronger performance was driven by a pick-up in net exports and in particular by growth in mining activity which was up 5.2 per cent after a decline in the previous quarter.

Exports in seasonally adjusted terms rose 5.4 per cent, while imports fell 1.8 per cent.

The oil and gas sector drove the rise with a 10.4 per cent increase, while iron ore, up 5 per cent, and coal, up 4.6 per cent, also made strong contributions.

The principal black spot was a 6.4 per cent decline in rural exports for the quarter.

Growth in the export sector more than offset falls in private and public investment, which were down 2.9 per cent and 9.2 per cent respectively.

However JP Morgan economist Tom Kennedy said it appeared "all Australia's eggs are in the net trade basket".

"As a result, the domestic economy excluding trade contracted 0.6 per cent in the quarter, the largest quarterly contraction since the financial crisis," Mr Kennedy said.

He noted the booming trade outcome was, in large part, supported by a rebound in resources shipments, following weather-related port closures in the second quarter.

"As such, the magnitude of today's contribution is unlikely to be repeated in upcoming releases," Mr Kennedy said.

The biggest component of GDP, household consumption, increased 0.7 per cent in seasonally adjusted terms, while government consumption also rose 0.7 per cent.

Incomes and living standards fall

Real net disposable income, which is a broader measure of the change in national wellbeing, fell 1.2 per cent, well behind the overall growth in the economy.

RBC's Su-Lin Ong said the result was even more worrying on a per capita basis.

"Perhaps most telling, the key measure of living standards — real net national disposable income per capita — fell for the sixth consecutive quarter down 0.5 per cent, with the year on year rate at minus 2.4 per cent," Ms Ong said.

NAB chief economist Alan Oster the result was pretty well what was expected, although the drag from falling business investment was not as negative as many thought.

Mr Oster noted this was largely due to the services sector not being covered in the ABS quarterly business investment data, but it is captured in the national accounts.

Mr Oster said perhaps the biggest surprise was softer than expected numbers from some of the bigger states.

Economy remains patchy

Overall domestic demand growth fell by more in the September quarter than at any time since the global financial crisis.

Domestic demand in New South Wales fell 0.2 per cent, down from the 1.1 per cent growth recorded in the June quarter, while demand in Victoria was flat after growing at 1.3 per cent in the previous quarter.

The Northern Territory suffered the biggest fall in domestic demand, down 7.1 per cent, while Western Australia was down 1.3 per cent and Queensland fell 0.2 per cent.

Demand in both South Australia and Tasmania rose 1.3 per cent.

Citi's Josh Williamson said, based on this definition of activity, the resource-rich states of Queensland and Western Australia arguably were in a demand recession.

"Weakness in demand across the states is at odds with the headline GDP growth rate and is an example of the unbalanced profile of the Australian economy," Mr Williamson said.

GDP ahead of RBA forecasts

Speaking in Perth after the figures were released Reserve Bank Governor Glenn Stevens suggested the GDP numbers were slightly stronger than the RBA's forecasts.

GDP needs to only grow at 0.1 per cent in the fourth quarter for the RBA to reach its year end forecast of the economy growing at 2.25 per cent.

Ms Ong said, while the RBA may be content with the headline number, there is doubt that the composition of growth offered much comfort.

"There are signs of transition in activity away from the resource sector, with a reasonable performance from households the bright spot in today's accounts," Ms Ong said.

"But we suspect that the composition of growth in the third quarter is likely to be repeated for much of 2016 — tepid domestic demand, with the residential construction set to peak and growth remaining largely driven by net exports."

Ms Ong said it was likely the economy needed both another interest rate cut and lower dollar to make up for the tumbling business investment and terms of trade that are stifling growth and national income.

As a result, the domestic economy excluding trade contracted 0.6 per cent quarter-over-quarter, the largest quarterly contraction since the financial crisis.