Australia’s economy barely grew in the first quarter, with consumers remaining frugal despite lower borrowing costs. Government spending, a key driver of growth last year, slowed down significantly.
Real gross domestic product (GDP) rose 0.2% in the March quarter, below market forecasts of 0.4%. Annual growth flatlined at 1.3%, well short of the 2.5% pace that was previously considered “normal”.
The subdued result was partly due to weak partial GDP data and extreme weather events affecting mining, tourism, and shipping. The Australian dollar remained stable, while three-year bond futures trimmed earlier gains.
Swaps imply an 80% probability of a rate cut in July, with a total easing of almost 100 basis points priced in by early next year.
The Reserve Bank of Australia has already cut interest rates twice since February to 3.85%. The minutes of the May policy meeting showed that it was open to an outsized half-point move as US tariffs darkened the outlook for the global economy.
Treasurer Jim Chalmers welcomed the still positive growth, saying any growth is a decent outcome in uncertain global economic circumstances. Household savings ratio jumped to 5.2%, while household consumption edged up 0.4% in the quarter.
Experts expect a rate cut in July and believe it may boost consumer confidence and lead to higher household spending. Measures of inflation showed a continued moderation, with deflator for domestic demand up 0.5% in the quarter, the slowest pace in four years.
Source: https://www.reuters.com/world/asia-pacific/australia-economy-barely-grows-q1-government-spending-drags-2025-06-04