Australia's economy expanded at a much faster-than-expected pace in the final quarter of last year, official data showed on Wednesday, and all signs are that 2021 has started on a firm footing too helped by massive monetary and fiscal stimulus.

The economy accelerated 3.1% in the three months to December, data from the Australian Bureau of Statistics (ABS) showed. Economists in a Reuters poll had forecast a 2.5% rise following an upwardly revised 3.4% gain in the third quarter.

Despite the best ever back-to-back quarters of growth, annual output still shrank 1.1%, underscoring the havoc wreaked by the coronavirus pandemic and suggesting policy support will still be needed for the A$2 trillion ($1.57 trillion) economy.

The fourth-quarter expansion was driven by household consumption as services spending rebounded while private investment contributed 0.7 percentage points to growth with rises across housing and business spending.

Favorable weather conditions led to a strong increase in agricultural production, the ABS said.

Consumers are expected to drive growth in the current quarter with data on credit and debit card spending by major banks as well as official figures on retail sales, employment and building activity all staying strong.

"The economic recovery has been V-shaped and there is a lot more to come in 2021," said Gareth Aird, head of Australian economics, Commonwealth Bank of Australia.

"Much of our economic success can be attributed to very low community transmission of COVID-19 as well as very significant and swift policy responses from Commonwealth and State governments, the RBA and the banking sector."

The Reserve Bank of Australia (RBA) slashed interest rates three times last year to a record low 0.1% and launched an unprecedented quantitative easing program while the government announced a wage subsidy scheme to keep people in jobs. Banks deferred payments on home loans and cut borrowing rates to help boost credit growth.