Australia's trade surplus narrows to $2.6bn in January

Australia's trade surplus narrowed to $2.6bn in January from $3.4bn in December, coming in well below expectations ($3.8bn). Exports made a soft start to 2026 (-0.9%) as imports lifted modestly (0.8%). Robust domestic demand has driven growth in imports over the past year (5.9%), far exceeding export growth (0.9%). 

Today's trade figures reported a surplus of $2.6bn in January, around its average of the past 3 months. Australia has run monthly trade surpluses for the best part of a decade now, though the surpluses of recent times have been amongst the narrowest over that period. The strong Australian dollar, currently around its highest levels on a trade-weighted basis since late 2017, will continue to support import spending (if sustained), and contribute to narrower surpluses than otherwise through 2026. 

Export revenue fell 0.9% in January to $44.1bn, the level little changed over the past 12 months (0.9%). Key drivers in the month were declines in rural goods (-5.2%) and non-rural goods (-1.7%), with some offset coming through from non-monetary gold (9%). Rural goods lifted strongly over the back half of the year, so the fall in January represented a pullback. The decline in non-rural goods came on the back of falls in coal (-4.4%) and iron ore exports (-1.5%). Meanwhile, non-monetary gold rose (9%) to be pressing record highs.  

Imports in January firmed by 0.8%, rebounding from a 1.8% fall in December to print at $41.4bn (5.9%yr). Capital goods rose by 5.1%, largely reversing its decline in the previous month as ADP equipment (related to data centres) surged by 50.4% in the month to be up 83.9% over the year. The strength in capital goods was accompanied by non-monetary gold (46.8%), more than offsetting declines in consumption goods (-3.7%) and intermediate goods (-4.5%).  

Australian household spending rises 0.3% in January

Australian household spending rose modestly to start 2026 lifting by 0.3% in January, slightly below the expected 0.4% increase. This was a rebound from a 0.5% decline in December (-0.5%) after the Black Friday sales and major events pulled spending forward into November (1%). Spending was up 4.6% over the year but is set to face headwinds from here with the RBA hiking and from renewed cost-of-living pressures.      

The household spending indicator (a high frequency measure of bank card spending) rose by 0.3% in January and 4.6% over the year. The key area of growth was in services categories (1%) - mainly in essential areas - as spending across goods declined (-0.3%) after also falling in the prior month (-0.8%).

Growth in spending in January was driven largely by health (1.7%) and 'other goods' (which includes personal effects such as pharmaceuticals) (2.5%). Transportation (including air travel) (0.3%) was another key support. Those gains were moderated by declines across several categories. The largest of those was in alcohol and tobacco (-1.7%), though the statistician is known to be having trouble accounting for tobacco given the rise in illicit sales. Meanwhile, falls were also recorded in hotels, cafes and restaurants (-0.6%) and furnishings and household equipment (-0.7%) - both discretionary-related areas.       

In review | Australian Q4 GDP: Growth revived in 2025

Momentum in the Australian economy accelerated in 2025, though it came at a cost by sparking renewed inflationary pressures. Real GDP growth was 0.8% in the December quarter - aligning with market and RBA forecasts - and 2.6% through the year, up sharply from its pace a year earlier (1.2%).        

Global growth was an important factor that supported the Australian economy, remaining resilient to trade and geopolitical headwinds. The US weighed on global growth in the December quarter amid a partial government shutdown, but growth in China - Australia's major trading partner - was solid, supporting commodity exports. 

In Australia, growth picked up over the course of the year, driven largely by private demand (3.2%Y/Y). This included gains across household consumption (2.4%Y/Y) as the RBA's easing cycle gained traction, and private investment (5.3%Y/Y). Capex spending associated with data centres surged to spark the business investment cycle (4.4%Y/Y), and dwelling investment (5.5%Y/Y) was supported by RBA rate cuts and a buoyant housing market. Meanwhile, public demand (2.1%Y/Y) also showed renewed strength as investment picked up over the back half of the year. These factors all combined to see domestic demand (0.5%q/q) rise by 2.9% year-on-year, its fastest pace since Q3 2023. 

The strength in domestic demand surprised the RBA, leading the Board to conclude that monetary policy was less restrictive than previously thought as inflation reaccelerated above the 2-3% target band. This prompted a rate hike at the February meeting, with the RBA highlighting concerns around capacity pressures. On that front, the National Accounts contained some good news as productivity growth held up (1%) to see unit labour costs ease (3.3%Y/Y) to a near 5-year low. Nonetheless, the RBA appears on track to hike the cash rate in May, following the 25bps increase in February.   

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National Accounts — Q4 | Expenditure: GDP (E) 0.8%q/q, 2.7%Y/Y 

Household consumption (0.3%q/q, 2.4%Y/Y) — Household consumption growth was surprisingly modest at 0.3% in the December quarter, its softest outcome in more than a year. However, consumption still lifted by 2.4% through the year and was the key driver of economic growth as RBA rate cuts and rising real incomes gained traction. 

The surprise came in discretionary consumption, which saw only a modest lift of 0.4% - especially after declining by 0.2% in Q3 - despite an extended Black Friday sales period and a stacked major events calendar. Essentials meanwhile rose by just 0.2%, though that takes into account a sizeable decline in utilities (-9.5%) associated with government rebates on electricity bills in New South Wales, Western Australia and the Australian Capital Territory. The ABS noted that household consumption excluding utilities lifted by 0.4% in the December quarter.

Household finances were looking fairly health as 2025 wound down. Gross disposable income lifted 1.8% in the quarter - wage incomes were up 1.4% in a robust labour market - and 6.9% over the year. This was sufficiently robust to outpace the pick-up in inflation, which the HCFE deflator clocked at 0.9%q/q and 3.2%Y/Y. This allowed real disposable incomes to continue to rise (0.9%q/q, 3.7%Y/Y), supporting the uplift in consumption in 2025 as well as boosting the saving rate to 6.9%, its highest since Q3 2022. The RBA's easing cycle was another key support for consumption. A total of 3 rate cuts saw the cash rate fall by 75bps in 2025, with interest payments falling on dwellings (-6.8%Y/Y) and consumer debt (-3.1%Y/Y).   

Dwelling investment (0.6%q/q, 5.5%Y/Y) — Residential construction activity (0.6%q/q) rose by 5.5% through the year. This was supported by a buoyant housing market, with the RBA cutting rates and housing prices rising in the order of 8% nationally in 2025. In the December quarter, new home building advanced by 1.1% (6%Y/Y), reaching its highest level since early 2019. Alteration work softened by 0.3% (4.6%Y/Y).

Business investment (0.5%q/q, 4.4%Y/Y) — Coming off its strongest rise in 4½ years in the previous quarter (3.8%), business investment advanced a further 0.5% in the December quarter. Year-on-year growth firmed to 4.4%. Non-dwelling construction (1.2%) recorded a similar pace of growth to Q3 and was the key driver, supported by data centres. The fit-out of data centres played a key role in Q3 as equipment investment surged (7.7%), but this quarter it eased back by 1.1%. Intellectual property products (1.9%) also drove business investment.   

Public demand (0.8%q/q, 2.1%Y/Y) — Rose by 0.8% in the quarter to be up by 2.1% across the back half of the year, a clear resurgence after a flat first half. Public investment turned the tide as the 2.2% increase in the previous quarter was followed up with a 0.4% lift this quarter. This was after the investment pipeline pulled back by more than 5% in the first half as major projects wound down. Government expenditure lifted by 0.9%q/q on increased spending at the state (electricity rebates) and federal (Medicare, NDIS and defence) levels. 

Inventories (0.4ppt in Q4, 0.1ppt yr) — Total inventory levels increased by around $0.7bn in the December quarter. In the previous quarter, inventories declined by $1.8bn. The swing in inventory levels from Q3 (-$1.8bn) to Q4 ($0.7bn) was around $2.5bn, delivering a 0.4ppt contribution to quarterly growth, its largest boost since Q1 2024.  

Net exports (-0.1ppt in Q4, -0.2ppt yr) — Deducted 0.1ppt from quarterly GDP, with net exports weighing on growth in three of the four quarters in 2025. Robust domestic demand underpinned a 1.8% rise in imports, which outpaced growth in exports (1.4%).

Import volumes picked up from a 2.7% pace in the first half of the year to rise by 3.9% in the back half. The lift was driven by a second half surge in capital goods (8.1%) that was associated with the fit-out of data centres. Notably, services imports slowed to the point of backsliding slightly in the second half (-0.2%) as offshore travel demand weakened. Exports rose by 1.4% for the second quarter in succession. While services exports slowed over the back half of the year (3.1%), that was offset by a lift in goods exports (2.7%). That was driven by a rebound in coal exports (7.3%) and strength in iron ore (4.6%). 

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National Accounts — Q4 | Incomes: GDP (I) 0.8%q/q, 2.4%Y/Y 

Growth in the GDP income estimate matched the headline figures at 0.8% quarter-on-quarter and 2.4% year-on-year. This occurred within the backdrop of nominal GDP growth of 1.8% in the quarter and 6% over the year. The terms of trade modestly supported nominal growth rising by 0.4%. This came as export prices (1.8%) lifted on the back of factors including higher iron ore prices, while a strong Australian dollar put downward pressure on import prices (1.4%). 

Conditions in the domestic labour market remained robust in 2025, retightening in the final quarter. The unemployment rate fell to average 4.2%, down from 4.3% in the September quarter as employment growth reaccelerated. This supported growth in wage incomes, with the compensation of employees measure lifting by 1.4% quarter-on-quarter and 6.4% year-on-year. Wage incomes rose by 1.4% across the both the private and public sectors in the quarter. 

The solid demand backdrop underpinned rising company profits, up 2.2% in the December quarter and 4.4% over the year. Private non-financial company profits lifted by 1.9% - their strongest quarterly rise since Q1 2023 - with the mining sector a key contributor on higher prices for iron ore, gold, and lithium. Meanwhile, improved margins and strong demand supported profits for airlines within the transport sector. Financial corporations saw profits rise at a strong pace (2.3%q/q and 8.9%Y/Y), with the RBA's easing cycle not proving to be a headwind for lending margins. Gross mixed income (small business profits) also accelerated, up 3.9% in the quarter to record their fastest annual growth (8.5%) since the post-Covid demand surge in Q1 2021.  

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National Accounts — Q4 | Production: GDP (P) 0.8%q/q, 2.6%Y/Y

The December quarter's estimate for GDP on the production approach was 0.8%, elevating annual growth to 2.6% - its fastest pace in almost 3 years. Growth was evenly distributed across the goods and services sectors.  

In the goods sector, the main contributor to output growth was the mining industry. Production in the mining industry rose by 2.6% in the December quarter, with output lifting across iron ore, coal and LNG. Consumer demand underpinned increased output in the transport (1%), retail (0.3%) and wholesale industries (0.4%). 

Output in the services sector was led by business services, which rose by 1.3% for the quarter. This included strong gains in financial (1.3%) and professional services (1.9%), while information media and telecommunications (1.2%) was supported by data centre activity. Household services saw output lift by 0.3% in Q4. The key support was accommodation and food services (0.8%) on the back of strong demand for dining out and a boost for hotels from international and domestic travel.

Australian GDP growth 0.8% in Q4

The Australian economy expanded by a solid 0.8% in the December quarter, aligning with market and RBA forecasts. Annual growth picked up from 2.1% to 2.6%, its fastest pace since the March quarter of 2023. Despite some quarterly volatility, the broad narrative around the strength of domestic demand (including consumption and private investment) remained intact, with growth also boosted by renewed strength in the public sector. Robust growth will keep the RBA wary of inflationary risks associated with capacity pressures, though today's report is probably not enough to force the RBA into hiking at back-to-back meetings. The next hike remains fully priced by May.  

Growth was broadly based in the December quarter, delivering a strong finish to 2025. While

household consumption slowed to 0.3% - its softest quarter since declining in Q2 2024 - that partly reflects noise associated with electricity rebates. Over the past year, household consumption (2.4%Y/Y) has been the key driver of economic growth on the back of rising real incomes and 3 RBA rate cuts. But alongside this, household saving has also increased reaching its highest level (6.9%) since Q3 2022, providing further scope to support consumption in 2026 - even with the RBA hiking. 

Both business investment (0.5%) and dwelling investment (0.6%) continued to support growth, though both cooled from much stronger increases in the prior quarter. Meanwhile, another rise (0.8%) confirmed public demand saw a notable reacceleration through the back half of the year, lifting by 2.1% after a flat first half. Both government spending and investment played a role. Inventories delivered a 0.4ppt contribution to growth - its strongest since Q1 2024 - which was only partially moderated by a 0.1ppt deduction from net exports. 

More to come.

Australian dwelling approvals slide in January

Australian dwelling approvals fell to a 19-month low in January after declining by 7.2% in the opening month of 2026, a material surprise on expectations for a 5% rise. Higher-density or unit approvals were down 21% on the month following an even larger fall in December (-32.7%). By contrast, house approvals notched a 1.2% rise to reach their highest level since August 2022. Despite favourable dynamics of rising housing prices and RBA rate cuts, dwelling approvals failed to fire in 2025. They now head into 2026 where the RBA has already started to reverse course.  

Dwelling approvals fell to their lowest level since June 2024 after a 7.2% decline in January (14.6k). Because of the volatility in the series, consider that approvals averaged 16.2k per month over the past 3 months. In January 2025, approvals were averaging 16k. This highlights that growth in approvals has been remarkably subdued, especially when taking into account that the RBA cut rates on 3 occasions through this period. House approvals have risen - though it has been a slow grind - leaving swings in the much more volatile higher-density segment to dictate the overall direction of approvals. 

The available estimates point to broad-based weakness across the higher-density segment. Approvals have trended downwards for high-rise and townhouses. Low-rise approvals have also been weak.

Drilling down further, Melbourne looks to be the city that has driven the weakness in this segment, though other cities have also played a role. 

Work approved in the alterations space climbed to new heights at just below $1.3bn on the back of a 1.6% lift in January. This comes after an increase of a little more than 4% in the final quarter of last year. This looks largely to be a price-driven increase, with recent construction activity data indicating that the volume alteration work completed largely stalled in the December quarter.  

Australia Current Account -$21.1bn in Q4; net exports -0.1ppt

Australia's current account deficit widened to $21.1bn in the December quarter from $18.3bn in the September quarter. At almost 3% of GDP, this was the largest deficit seen since the middle of 2018. Solid growth in imports (1.8%) reflected the ongoing strength in domestic demand, outpacing exports (1.4%). Overall, net exports are expected to deduct 0.1ppt from GDP growth in the December quarter.     

 

The current account deficit was $21.1bn in the December quarter, some $2.8bn larger than in the previous quarter, with payments to foreign investors increasing as domestic investors saw lower returns from investments offshore. This was the 11th consecutive deficit, and the widest in 10 years. Measured another way, the deficit was 2.9% of nominal GDP (using Q3's nominal GDP), the largest since Q2 2018.   

Only around 4 years ago, the current account was printing record surpluses of more than 3% of GDP, delivering a significant revenue windfall for Australia. Since then, commodity prices have come off their highs and the post-Covid surge in inflation drove up import prices. Those dynamics are reflected in the rollover in the terms of trade. But Australia's floating exchange rate buffered the economy from an income shock, with current account deficits weighing on the AUD, a boost for exports. But if the recent strength in the AUD is sustained - it is currently at its highest since 2018 on a trade-weighted basis - then the macro dynamic changes.  

The trade surplus was a wafer-thin $1.3bn in the December quarter. Exports rose by 3.2% to around $172bn, with prices up 1.9% and underlying volumes lifting by 1.4%. The key driver of volumes was iron ore (3.9%), which saw its strongest rise since mid-2020. Spending on imports rose by 3.3% to $170bn. Within this, import prices increased by 1.4% and volumes lifted by 1.8%. Consumption goods volumes increased by 2.5%, with gains across items such as clothing and footwear, vehicles and household appliances, indicating consumer demand remained robust. 

Due to the 1.8% rise in import volumes outpacing the 1.4% growth in exports, the net exports component is estimated to weigh on GDP growth in the December quarter by 0.1ppt. Expectations were for a 0.3ppt reduction, so this was an upside surprise.   

Australian Business Indicators Q4: inventories -0.1%

Australia's Business Indicators data were broadly reflective of a solid domestic economy in the December quarter. Sales volumes rose by 0.6% to be up by 1.2% across the back half of 2025, lifting from growth of 0.9% in the first half. Robust demand is seeing inventories decline, which fell for the second quarter in succession, and supporting rising company profits.  

Ahead of the National Accounts on Wednesday, today's report on the business sector suggests that private inventories will add 0.2ppt to GDP growth in the December quarter. Strong demand is seeing inventory levels decline. But the decline in the latest quarter was a smaller 0.1% compared to 0.8% in the previous quarter, a dynamic that will add positively to GDP.   

As highlighted, demand has been robust. Sales rose by 0.6% in the December quarter and 2.1% through the year. The chart below shows that sales have risen broadly across the economy in the December (green bars) and September quarters (gold bars). The only surprise was the decline in arts and recreation in the latest quarter (-1.5%) given the reporting has been that major events and concerts were well attended, but this follows several quarters of strong growth.  

The domestic demand backdrop and higher commodity prices drove company profits to increase by 5.8% in the December quarter, their fastest rise in three years. On an inventory adjusted basis (a closer methodology to that used in the National Accounts), profits were up 4.8% in the quarter. Profits in the non-mining sector rose by a solid 4.4% for the quarter while the mining profits accelerated by 8.1% - the fastest growth recorded since the middle of 2022.   

Wage incomes continued to rise, albeit at a slower clip of 0.9% in the December quarter. Prior to this, wages rose in excess of 1% in each of the preceding six quarters. Annual growth slowed modestly but was still running at a healthy pace (5.6%).