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In a public address that distanced Treasury from the optimistic stance adopted by the Reserve Bank, Dr Henry yesterday told an Australian Industry Group forum in Canberra that pundits should be careful ''not to prematurely declare that the war is over''.

''The Australian economy does look, certainly relative to the rest of the world, very resilient,'' he said. ''But the rest of the world is not out of the woods yet. It is possible that there will be a second shockwave. I have no reason to believe it will be anything like the first shockwave, but there could be a second shockwave.

''That would have implications for future growth. So I think we should be a little cautious about rushing to declare victory just yet.''

Prime Minister Kevin Rudd last night warned that cutting back on the Government's economic stimulus now would threaten thousands of small and medium-sized businesses.

Mr Rudd, strongly attacking Opposition claims the Government is spending too much, said that without the early stimulus, ''Australia would already be in recession''.

''Treasury's advice is clear: without the cash stimulus to low-income earners, Australia would have experienced a second consecutive negative quarter in March, pushing Australia into technical recession.''

He told the Australian Industry Group's dinner that if the Opposition had had its way and there had not been short-term stimulus, ''Australia would have joined much of the rest of the world in recession''.

Reserve Bank Governor Glenn Stevens on Friday told parliamentarians the present downturn would probably be one of Australia's ''shallower ones'' and that unemployment would be unlikely to reach the 8.5 per cent budget forecast, adding that interest rates should soon move towards ''more normal'' levels.

Dr Henry, who sits with Governor Stevens on the Reserve Bank board, was more cautious, saying that while ''there are grounds for optimism, there's no doubt'', he was ''not rushing to judgment''.

''I think it is fair to say that nobody fully understands the reasons for the somewhat better economic performance. We will update our forecasts later in the year and take stock, but we are spending this present period analysing in some depth the reasons.''

Dr Henry spoke as Japan joined Germany and France in emerging from recession, returning to positive growth.

However, Japanese economists warned that its return to growth of 0.9 per cent in the June quarter might be short-lived, pointing out that spending was weak, wages were falling and lay-offs in firms such as Toyota and Sony had pushed Japan's unemployment rate up towards Australia's at 5.4 per cent.

Dr Henry was optimistic about Australia's prospects once global growth returned.

He also built up expectations for the Henry Tax Review due to report in December, describing it as a ''once-in-a-generation opportunity''. While appearing to rule out applying capital gains tax to the family home, he said some of the recommendations he was considering relied on ''embryonic'' technologies that might take a decade to implement.

With MICHELLE GRATTAN