The Australian National Accounts will today (3/9) report the nation's GDP growth outcome for the June quarter. Modest growth of around 0.4% is expected for the quarter, which would leave year-ended growth at a lackustre pace around 1.5%. Australia has been relatively unscathed through the initial period of the US administration's tariff regime, imposed with the 10% baseline tariff on a fairly small share (around 6%) of the nation's total exports. The key dynamic domestically is around the propensity of households to spend with inflation cooling, the labour market remaining robust and the RBA now lowering interest rates. Given the recent focus on Australia's weak productivity growth, expect the latest productivity estimates to receive plenty of attention; however, those should have little bearing on RBA policy decisions.
A recap: Momentum slows in early 2025
Australian GDP growth weakened to 0.2% in the March quarter, slowing the momentum built up over the back half of last year. Annual growth was steady at 1.3% - barely half its cruising pace. Key dynamics in the March quarter included ongoing caution amongst households and firms holding back spending and investment, public demand unexpectedly slowing, and adverse weather events - notably Cyclone Alfred in south east Queensland - causing major disruptions. Australian exports to the US accelerated as orders of goods such as non-monetary gold and beef were brought forward ahead of the US administration imposing sweeping trade tariffs. However, exports on the whole weighed on growth - unlike in the UK, euro area and Canada where exports underpinned growth in the quarter.
Over the past year, public demand has overwhelming driven growth. This stems back to the pandemic recovery when spending on public programs (health and aged care) and investment in infrastructure was ramped up by governments at the state and federal levels. The cost of living and higher interest rates have kept households quiet for an extended period, reflected in the saving rate rising to a 2½-year high of 5.2%. Residential construction and business investment - both interest-sensitive areas of the economy - remained soft, with elevated uncertainty around the economic outlook a contributing factor. Net exports have been broadly growth neutral; adverse weather events hampered resources exports while overseas travel supported imports.
June quarter preview: Resilience as trade headwinds intensify
Economic uncertainty offshore increased significantly as the US administration announced its new regime of tariffs on its trading partners, later deferred under a 90-day extension. Australia attracted a 10% tariff, the baseline rate imposed by President Trump on Liberation Day. Volatility in trade flows and inventories led to swings in growth outcomes. After contracting in Q1, US GDP growth rebounded in the latest quarter (0.7%) but on the other hand growth slowed in the UK (0.3%), euro area (0.1%) and Canada (0%).
In Australia, some signs of positivity around the consumer emerged. A clear uptick in household spending was notable over May and June, sparked by sales events and new product launches. This was also assisted by the RBA continuing its easing cycle with a 25bps rate cut in May. Meanwhile, real income growth was boosted by inflation slowing to lows since 2021 at 2.1% year-on-year in headline terms and 2.7% year-on-year on an underlying basis.
Surveyed business conditions were soft for much of the June quarter but improved late in the period. Ongoing concerns around margin pressures were evident, though labour costs have eased over the past year. Business confidence had been weighed by economic and policy uncertainty but had also shown signs of improvement.
Key dynamics in June quarter
Household consumption — Discretionary-related spending lifted household consumption to modest growth in the quarter. Spending on big ticket items including furniture and electronics was supported by mid-year sales and the RBA's May rate cut.
Dwelling investment — Looks to have lost some of its recent momentum with both the construction of new homes and alteration work slowing in the quarter.
Business investment — The capex cycle stalled over the first half of the year. Margin pressures and softer demand have weighed on business investment, while uncertainty over the global economic outlook and higher interest rates have also played a role.
Public demand — Rebounded by a modest 0.2% in the June quarter from a 0.6% fall in the previous quarter. Public spending (1%) continues to be supported by large-scale programs in health care and defence; however, public investment (-3.4%) declined for the second quarter in succession.
Inventories — Expected overall to subtract 0.2ppt from quarterly GDP growth. Private non-farm inventories are set to weigh by 0.4ppt but public sector inventories will add 0.2ppt to growth.
Net exports — Added a very modest 0.1ppt to quarterly growth. Export volumes rose by 1.7% in the quarter supported by resources shipments (2%) and inbound travel (4.8%). This outpaced a 1.4% rise in imports where offshore travel (3.5%) was a key driver.
