Annual GDP growth slows to 2.5%

For its quarterly GDP estimate, the Australian Bureau of Statistics’ (ABS) Australian National Accounts announced that despite an increase by 0.3 per cent month on month, the nation’s GDP has fallen by 0.1 percentage points year on year from 2.6 per cent to 2.5 per cent, in its latest release on Wednesday (3 June).

"Economic growth slowed in the March quarter, with modest household and public sector expenditure as well as cyclone disruptions to mining and export activities,” said Grace Kim, head of Australian National Accounts at the ABS.

"Rising interest rates and significantly higher fuel costs in March likely created an environment for more cautious consumer behaviour. This resulted in reduced spending across a range of household expenditure categories," she said.

With the expansion of data centres in NSW and Victoria in the March quarter, the ABS noted that machinery and equipment investment recorded the highest rise in 30 years; however, the contribution of this investment to GDP growth was moderated because most of this equipment was imported, it stressed.

Prior to the release of the GDP figure, Westpac predicted an expansion of Australia’s economy of 0.3 per cent over the first quarter (with an annual rate of 2.4 per cent in Q426), while Commbank expected growth of 0.0 per cent (and an annual rate of 2.1 per cent in Q426).

Commbank said that their prediction was “dominantly due to a weaker than expected outcome from the public sector … In contrast, private demand is expected to be positive, driven by gains in both household consumption and business investment”.

“Total dwelling approvals fell 3.4 per cent month-on-month in April, with the annual pace lifting to 10.2 per cent year on year. Approvals look to have normalised back towards the 2025 average monthly run rate following February’s surge,” said Mantas Vanagas, senior economist at Westpac Group.

CommBank added that after a rise in National Minimum Wage by 6 per cent, and a 4.75 per cent rise in award wages was announced on Tuesday (4 June), economy wide wage growth will increase; however the bank noted that only 10 per cent of workers will be directly impacted by this wage increase, and thus this “does not alter [its] broader view on inflation and interest rates”.

In light of Trump calling reports of US-Iran negotiations breaking down “false and erroneous”, Vanagas noted that markets are continuing to watch developments in the Middle East conflict, with equities rising, most currencies slightly higher, yields mostly lower, and oil modestly higher.

Global oil prices rose to a one-week high as the market waited for news on the Iran war, amid Tehran's review of a proposed agreement with the US to halt the conflict, and Brent crude futures settled up 0.9 per cent at US$95.8 a barrel, CommBank said.

“Oil prices rose for a second consecutive day, seemingly starting to reverse the downward trend seen in the second half of May,” Westpac said.

RBA governor Michele Bullock will appear for the first time since the May Board decision, before the Senate Economics Legislation Committee on Thursday (4 June).

“This may provide an insight into the RBA’s thinking around the economic outlook post April CPI and the softer labour force report,” CommBank said.