The ABS is due to publish Australia's GDP growth outcome for the December quarter in the today's (4 March) National Accounts (due 1130). Growth is likely to come in around the RBA's forecasts for 0.8% in the quarter and 2.3% over the year. In recent quarters, growth has surprised to the upside, and that is a possibility again today, which if realised would reaffirm the RBA's concerns around capacity pressures in the economy. Pricing for an RBA rate hike in March climbed from 10% to 30% on yesterday's comments from Governor Bullock that the March meeting is live. A hike is fully priced by May, after the cash rate was raised by 25bps to 3.85% in February.
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 — Contributed 0.3ppt to quarterly growth. Government spending lifted by 0.9%, driven by state and local government expenditure. Public investment rose by 1%.
Inventories — Added around 0.4ppt to growth in the quarter, with both private (0.2ppt) and public sector inventories (0.2ppt) delivering.
Net exports — Broadly neutral for growth, deducting just 0.1ppt. A 1.4% rise in exports was slightly outpaced by a 1.8% increase in imports.
