Australia’s economy recorded slower-than-expected growth in the March quarter, with gross domestic product (GDP) expanding by just 0.2%, according to data released on Wednesday by the Australian Bureau of Statistics (ABS). GDP grew by 1.3% annually, unchanged from the December quarter reading.
The figures missed market expectations of a 0.4% quarterly rise and 1.5% annual growth.
“Economic growth was soft in the March quarter. Public spending recorded the largest detraction from growth since the September quarter 2017," said Katherine Keenan, ABS head of national accounts.
"Extreme weather events reduced domestic final demand and exports. Weather impacts were particularly evident in mining, tourism and shipping.”
Inflation Pressures Persist
Despite weak real growth, nominal GDP rose 1.4%, driven by rising prices. The GDP implicit price deflator (IPD) increased 1.2%, underpinned by higher labour costs across both public and private sectors, and increased prices in services such as health, education and rent.
Fuel prices also rose sharply during the quarter, broadening inflationary pressure across domestic demand.
Australia’s terms of trade edged higher, with export prices up 2.7% and import prices up 2.6%. Export price gains were supported by stronger iron ore demand from China and weather-related supply issues.
Non-monetary gold and rural goods also saw higher prices due to robust global demand, while coal prices fell.
Import prices climbed in response to a weaker Australian dollar. Price increases were observed in capital and intermediate goods, while consumption goods prices were flat amid falling vehicle and medicine prices.
Contributors to Growth
Domestic final demand added 0.2 percentage points (ppt) to quarterly GDP growth, led by household consumption and private investment.
In contrast, public investment detracted 0.1ppt, while government expenditure was flat.
Net exports weighed on growth, subtracting 0.1ppt, with goods and services exports falling 0.8%, partly offset by a 0.4% drop in imports.
Inventories added 0.1ppt to GDP growth, with notable stockpiling in mining due to delayed shipments from port closures.
Manufacturing inventories also increased with the higher output of gold, steel and alumina, while public inventories fell in line with increased gold exports.
Household Spending Rises
Household consumption rose 0.4%, supported by a 0.4% increase in essential spending. Electricity, gas, and other fuel costs surged 10.2%, driven by warmer-than-average summer temperatures and reduced electricity rebates, which are recorded as transfers to government spending.
Food consumption climbed 0.8% amid recovery from supermarket disruptions and cyclone-related stockpiling in Queensland.
Discretionary spending was softer at 0.3% following a strong December quarter, although purchases of vehicles and cultural and recreational services rose.
Meanwhile, the household saving to income ratio increased to 5.2% in the March quarter, as gross disposable income rose 2.4%, outpacing the 1.0% rise in nominal household spending.
“The 1.3 percentage point rise in the household savings ratio this quarter included higher income support from government and insurance claims linked to severe weather events in Queensland,” Ms Keenan said.
“There was also a small rise in small business income, while mortgage interest payments dropped following the Reserve Bank of Australia's cash rate cut in February 2025.”
More Rate Cuts Ahead?
The weaker-than-expected data comes ahead of rising expectations of further interest rate cuts from the Reserve Bank of Australia at their next board meeting on 8 July, after cutting rates to fresh two-year lows last month.
According to ASX's RBA Rate Tracker, as of 3 June, the ASX 30 Day Interbank Cash Rate Futures July 2025 contract indicates an 81% expectation of an interest rate decrease to 3.60%.
