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.
