The ABS is due to publish Australia's GDP growth outcome for the December quarter in the National Accounts next week (4 March). Growth of around 0.5% in the quarter and 2% over the year is expected at this stage, though more inputs early next week will help sharpen estimates. In recent quarters, growth has surprised to the upside as private consumption and investment have rebounded, taking over from public demand as the major driver of growth. But with inflation reaccelerating back above target, the RBA hiked rates in February linking this to excess demand and capacity pressures in certain sectors of the economy.
September quarter recap: Domestic demand accelerates
Australian GDP growth moderated from 0.7% to 0.4% in the September quarter. However, that belied the fastest acceleration in domestic demand (1.2%) in more than 2 years, with headline growth weighed by volatile trade and inventory components. Annual GDP growth firmed from 2% to 2.1%, remaining around the RBA's estimate of potential growth.
The pick-up in domestic demand was led by business investment (3.4%) as capital expenditure on the construction and fit-out of data centres ramped up. Household consumption eased in the September quarter (0.5%), with discretionary purchases cooling (-0.2%) in order to fund the essentials (1%). Public demand (1.1%) rebounded from recent weakness. Against this, inventories (-0.5ppt) and net exports (-0.1ppt) weighed on growth.
December quarter preview: Momentum set to continue
The global backdrop continued to support the Australian economy, despite ongoing trade and geopolitical uncertainty. Growth across OECD economies was 0.3% in the December quarter and 1.7% through the year. In China, output growth remained solid in the quarter (1.2%) but had slowed through the past year, weighed by softer domestic demand. Global trade and inventories remained volatile following the tariffs imposed by the US (since ruled invalid by the US Supreme Court), but their overall impact on growth has been limited.
Conditions in the domestic economy remained robust through the final quarter of 2025. The RBA's earlier easing cycle that delivered 75bps of rate cuts gained traction, supporting consumption and a buoyant housing market. The ABS's gauge of household spending accelerated by 0.9% in the quarter alongside the Black Friday sales and a stacked calendar of major sporting events and concerts. Housing prices nationally lifted by around 5% over the back half of the year, while housing credit growth was running at around 7% in annual terms by year-end - its fastest pace since late 2022. Business investment moderated, though that mainly reflected the timing of equipment purchases that surged in the previous quarter.
Key dynamics in Q4
Household consumption — Rose at pace in the quarter, supported by increased spending in most consumption categories. Real income growth and RBA rate cuts look to have boosted discretionary spending during the Black Friday sales and at major events.
Dwelling investment — Residential construction work continued to increase after accelerating in the previous quarter, signs that the RBA's easing cycle and rising housing prices were supporting this activity. New home building was the driver as alteration work slowed.
Business investment — Momentum in business investment was slightly curtailed as equipment spending slowed after surging in Q3; however, non-residential construction activity (including data centres and renewable energy projects) continued.
Public demand — Government spending remains at elevated levels and likely continued to support growth in Q4. By contrast, public investment is slowing as more infrastructure projects near or reach completion.
Inventories — Partial data on inventories is due early next week. Inventories are coming off their largest deduction (-0.5ppt) to quarterly activity since Q2 2023.
Net exports — Balance of payments data next week is likely to show trade made a small contraction to quarterly growth. Robust domestic demand has boosted demand for imports.
