Australia’s economic growth passes trough as households revive

SYDNEY – Australia’s economy picked up the pace in the final three months of the year, boosted by a revival in household spending, though the outlook remains clouded by persistent inflation at home and mounting trade tensions abroad.

Government data released on March 5 showed g­­­ross domestic product (GDP) advancing 0.6 per cent, double the pace recorded in the third quarter of 2024, while the 1.3 per cent annual expansion exceeded the Reserve Bank of Australia’s (RBA) 1.1 per cent forecast.

On a per person basis, GDP eked out a 0.1 per cent rise following seven consecutive quarters of declines. The increase was driven by weaker population growth, economists said.

“The low point of Australia’s economic cycle has now passed, with some green shoots appearing,” said Mr Stephen Smith, a partner at Deloitte Access Economics. “However, this firming outlook represents the economy kicking into gear rather than firing on all cylinders. Unless more is done to encourage private sector growth and investment, there’s limited upside to the economic turnaround.”

The RBA expects economic growth to further pick up to 2.4 per cent by December 2025. It lowered the cash rate for the first time in four years in February to 4.1 per cent, citing growing confidence that inflation was headed back toward the 2 per cent to 3 per cent target. While monetary policy still remains restrictive, economists anticipate the easing will further support the economy.

The March 5 figures, including the lift in per capita growth, will be welcomed by Australia’s centre-left Labor government, which is trailing the opposition Liberal-National coalition in polls ahead of an election due by mid-May.

However, the broader economy is still under-performing compared to its 20-year pre-pandemic average of nearly 3 per cent, with government spending largely “keeping the lights on”, said Mr Bob Cunneen, a senior economist at MLC Asset Management. 

Government spending climbed 0.7 per cent in the fourth quarter of 2024, the data showed.

Measures of productivity remained weak: GDP per hour worked fell for a third straight quarter and non-farm unit labour costs, on an inflation-adjusted basis, remained elevated. The implicit price deflator in the data also signalled a still-strong inflationary impulse. “This outcome doesn’t materially move the needle on policy for the RBA near term,” said Mr Alex Joiner, chief economist at IFM Investors. “Of more concern to the bank are the unit labour costs, which remain elevated, and productivity that recorded another negative quarter.”

Asked after the RBA’s Feb 18 rate decision why Australia’s economy is under-performing, the bank’s governor Michele Bullock put that down to a relatively slow pick up in consumer spending.

“Consumption is recovering, but it’s not recovering as strongly as we initially thought it would,” she said at the time. “We still have it recovering reasonably slowly, and that’s a big driver of GDP growth.”

Still, there were some bright spots in the release.

The quarterly result was driven by a lift in household consumption, said Ms Katherine Keenan, Australian Bureau of Statistics’ head of national accounts, while adding that both public and private spending contributed to growth.

The acceleration in GDP growth in the fourth quarter of 2024 adds to other signs of a more positive outlook. Australia’s business conditions have been quite buoyant recently, and retail sales strengthened in five of the six months through January. BLOOMBERG