Australian GDP grows by 0.6 in June quarter, beating expectations

Australian GDP rose 0.6 per cent over the June quarter and 1.8 per cent year on year, data from the Australian Bureau of Statistics (ABS) has shown. This marked the highest annual GDP growth since the September 2023 quarter, and exceeded consensus forecasts of 0.5 per cent.

The rise was underpinned by greater-than-expected household spending, which rose 0.9 per cent in the June quarter after a 0.4 per cent rise in March, led by discretionary spending (+1.4 per cent).

IFM chief economist Alex Joiner said the economic “stars really aligned” in the household sector during the June quarter as sales promotions, holidays and interest rate cuts flowed into higher discretionary spending.

Tom Lay, ABS head of national accounts, said the uptick in discretionary spending had been underpinned by temporary factors, including end-of-financial-year sales, and holidays spurred by the proximity of Easter to ANZAC Day.

Public investment fell 3.9 per cent in the June quarter and was the largest detractor from GDP growth in the quarter, the ABS noted. This was the largest fall recorded since September 2017, excluding the COVID-19 period.

At the same time, private investment grew by 0.1 per cent, having minimal impact on GDP growth according to the ABS. While dwelling investment saw subdued growth (+0.3 per cent) and there was heightened spending on computer software and R&D, falls in non-dwelling construction (-1.2 per cent) offset these gains.

Government spending rose by 1.0 per cent in the June quarter, up from 0.3 per cent in the March quarter. Joiner said public spending growth was unsustainable, and that a pick-up in the private sector would be necessary to keep the unemployment rate from climbing.

“There's really been quite an increase in public spending in particular, which is fine, but it's not overly sustainable, because it's based on government spending. And governments can't just spend forever.”

“We need to see private sector employment pick up, because we're starting to see those government aligned jobs growth start to slow. So you need private sector jobs growth to pick up if we want to keep the unemployment rate [stable].”

Over the medium term, Joiner noted that subdued private sector growth could dampen productivity and thus wage growth and improvements to living standards, as private sector growth typically spurred greater productivity gains than public sector expansion.

He warned that a restrictive regulatory environment, skilled labour shortages and economic uncertainty had dampened business investment.

“Businesses see the regulatory environment as making things a little bit more difficult to invest in and get productivity enhancements. Skilled labour shortages are still quite acute, so if you can't get the skilled labour, you might not deploy the capital as well,” he said.

“People are unsure about the outlook for the Australian economy, to some degree, and businesses tend to be quite wary of their spending when they don't have a real clear picture of the future.”

In August, partly due to Australia’s poor productivity growth, the RBA downwardly revised its GDP growth forecast for the year to June 2025 to 1.6 per cent. Actual GDP figures exceeded this, at 1.8 per cent, but remained below the RBA’s potential output estimate of 2 per cent.

“GDP growth is expected to settle at a lower rate than previously forecast over the medium term, due to the lower outlook for productivity growth,” the central bank said in its August statement on monetary policy.

Steven Dooley, head of market insights at global payments platform Convera, said that the stronger-than-expected GDP data could lessen pressure on the RBA to cut interest rates.

“GDP is stronger than expected and, most notably, the household sector drove gains with household consumption up 0.9% over the quarter. Discretionary spending was up 1.4%,” he said.

“With household spending stronger, and domestic price pressures growing driven by increases in labour costs, the risk is the RBA might be less inclined to cut rates.”

Joiner said he expected Australia’s economy to continue to grow gradually over the medium term, and hoped that the government would take a more proactive approach to facilitating private sector growth.

“To my mind, what we need to see is a little bit more proactivity on the government side in order to facilitate some growth, rather than just relying on the Reserve Bank to cut interest rates, because I'm not sure they have the appetite to cut interest rates deeply and into accommodative territory.”