Australia’s economy has rebounded, recording its strongest quarterly growth in two years. The nation’s gross domestic product (GDP) rose by 0.6% in the December quarter and 1.3% over the year, according to fresh data from the Australian Bureau of Statistics (ABS).
The rebound follows a period of sluggish growth, marking the first per-capita GDP increase in nearly two years.
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Economy Turns a Corner
Federal Treasurer Jim Chalmers welcomed the latest figures, stating that Australia’s economy has “turned a corner.”
“This is looking more and more like the soft landing we have been planning and preparing for,” he said.
Chalmers highlighted key improvements:
- Inflation is down
- Incomes are strengthening
- Unemployment is very low
- Interest rates are falling
- Economic growth is picking up
“We are confident that the worst is behind us but we’re not complacent because people are still under pressure and global conditions are uncertain,” he said.
Household Spending and Savings Increase
Households played a significant role in the economic rebound. Household spending increased by 0.4% in the December quarter, a notable shift from stagnation in September.
ABS head of national accounts Katherine Keenan said, “Modest growth was seen broadly across the economy this quarter. Both public and private spending contributed to the growth, supported by a rise in exports of goods and services.”
The holiday season and Black Friday sales drove discretionary spending. Household savings also increased, reaching a nine-quarter high of 3.8%.
“With the savings rate now at a nine-quarter high, we think there’s scope for households to loosen their purse strings a bit more in the year ahead,” said Abhijit Surya from Capital Economics.
RBA’s Role in Economic Growth
The Reserve Bank of Australia (RBA) played a crucial role in the economy’s shift. It recently cut interest rates, easing financial pressures on households and businesses.
Deputy Governor Andrew Hauser noted the economy was making progress.
“Inflation is down and employment is up. We are moving on from the narrow path,” he said.
RBA Governor Michele Bullock acknowledged that rate changes were made carefully.
“The RBA was too slow to lift rates, and it didn’t want to make the same mistake when cutting them,” she told a parliamentary committee.
The rate cut is expected to further boost household spending and business investment.
Growth Expected to Strengthen
Economists agree that Australia has passed the lowest point of its economic cycle.
Stephen Smith, partner at Deloitte Access Economics, stated:
“We forecast moderate [annual] growth of 1.6% in 2025, before things pick up to 2.3% and 2.7% in 2026 and 2027, respectively.”
Oxford Economics head of macroeconomic forecasting Sean Langcake said, “Today’s GDP figures reveal that the low point of Australia’s economic cycle has now passed, with some green shoots appearing.”
He noted that key economic headwinds were easing.
“Monetary policy, for example, has entered a rate-cutting cycle that will boost household spending and business investment,” he said.
Productivity Challenges Remain
Despite the positive outlook, Australia’s productivity levels remain a concern.
The Australian Chamber of Commerce and Industry (ACCI) warned that productivity must improve.
“Business profits are up with gross operating surplus rising 1.1% for the quarter, and this is a welcome development following almost 18 months of contracting profits,” said ACCI chief executive Andrew McKellar.
However, he stressed that productivity remained negative.
“Productivity was again negative in the December quarter and has been for some time, and we call on both sides of politics to address productivity as a priority,” he said.
Private Sector Investment Needed
Some economists argue that the government must encourage private sector investment to sustain economic momentum.
“Unless more is done to encourage private sector growth and investment, there’s limited upside to the economic turnaround, particularly given the global economic environment appears to be darkening. With an election imminent, this should be front of mind for all policymakers,” Langcake said.
BDO Economics partner Anders Magnusson agreed.
“Government spending is at a multi-decade high, which tends to crowd out private business activity by competing for labour and capital, reducing output from the private sector,” he said.
He stressed that infrastructure investments should support long-term growth.
“If government expenditure is made on careful investments in infrastructure, then it can support private business activity in future,” he said.
Treasurer Chalmers Stays Cautiously Optimistic
Chalmers described the GDP figures as a “solid rebound in growth” but acknowledged ongoing economic risks.
“This pick-up in quarterly growth is an early and encouraging sign that momentum is building in the economy,” he said.
However, he warned that uncertainty remained.
“Resilient and rebounding growth is particularly important in the face of heightened uncertainty at home and abroad as we brace for Tropical Cyclone Alfred and confront rising global trade tensions,” he said.
Finance Minister Katy Gallagher shared a similar outlook.
“We’ve got inflation coming down, unemployment at pretty low levels, we’ve got wages going up, and we’re seeing interest rates coming down,” she said.
“So, I think all of those indicators point to a promising future and that we have turned the corner and been through the most difficult of those times.”
Conclusion
Australia’s economy has shown clear signs of recovery, breaking out of a per-capita recession. GDP growth in Australia the December quarter was the highest in two years, with rising household spending, employment growth, and lower inflation driving the rebound.
While economists see “green shoots” emerging, challenges like low productivity and the need for private sector investment remain. The government and RBA will play key roles in ensuring sustained growth.
