Australia's March quarter GDP growth figures are due in today's National Accounts release (3 June). Annual growth rose strongly to reach 2.6% in the December quarter, with consumer spending and private investment driving a recovery from cycle lows in mid 2024. The strength of the recovery ultimately played a role in the RBA hiking rates in 2026, given the Board's view that above target inflation was partly the result of excess demand amid broader capacity constraints. The Middle East conflict and closure of the Strait of Hormuz was the latest in a series of global shocks that have added to inflationary pressures, as fuel prices soared. The immediate impacts have been more evident on sentiment rather than growth. Still, growth is expected to have moderated to around 0.3% to 0.5% in the March quarter on the back of softer household demand. Business investment in the tech sector will be the standout.
December quarter recap: Domestic demand drives recovery
Australian economic growth was 0.8% in the December quarter, an above consensus outcome after rising by 0.5% in the September quarter. A domestic demand driven recovery led by household consumption and private investment lifted annual GDP growth from 2.1% to 2.6% - a sharp increase from cycle lows from around a year earlier (0.8%).
Despite cooling in the December quarter, household consumption was the major driver of growth in 2025. Growth was broadly based across discretionary and non-discretionary consumption, amid a supportive backdrop of rising real incomes and RBA rate cuts. A pick-up in private investment was also key to the recovery. Business investment accelerated over the year boosted by capex spending associated with the construction and fit-out of data centres. Meanwhile, residential construction also played a role, driven by increased activity in new home building.
March quarter preview: Headwinds to come
The Middle East conflict and resulting energy price shock, the defining event in the March quarter, is yet to impact global growth. The OECD estimated growth across the group lifted slightly to 0.4% in the quarter, up from 0.2% in the December quarter. Growth picked up in the US (0.4%), UK (0.6%) and Japan (0.5%), while it slowed in the euro area (0.1%). In China, growth was 1.3%, a similar pace to recent quarters.
Domestically, sentiment was heavily impacted by the conflict and higher fuel prices. The RBA hiking rates in February and March also contributed to this. Still, household consumption appears to have held up in the quarter but likely only increased modestly. Business investment may eventually be impacted by the increased global uncertainty, but in the meantime equipment spending associated with data centres surged. However, these orders are usually import-intensive, so the overall impact on growth is likely to be moderate, as imports weigh on GDP.
Key dynamics
Household consumption — Carried softer momentum into 2026 after coming in weaker than expected in the December quarter (0.3%). The ABS's spending indicator pointed to fairly modest growth in consumption volumes. RBA rate hikes in February and March and the fuel price shock were headwinds to households.
Dwelling investment — The strong momentum in residential construction activity seen over the back half of last year appeared to cool in the March quarter. New home building declined, though that will be offset somewhat by increased alteration work.
Business investment — Surged higher on the back of the tech-related capex boom. Investment in data centres continued to ramp up, underpinning growth in equipment spending and non-residential construction.
Public demand — Broadly flat in the quarter (0.1%), with spending declining (-0.2%) but offset by a lift in new investment (1.1%). The unwinding of electricity rebates weighed on spending at the state government level.
Inventories — Private non-farm inventories contributed 0.2ppt to growth, the mining sector playing a key role after cyclones derailed resources exports. This will be fully offset by public sector inventories (-0.3ppt).
Net exports — Deducted a material 0.8ppt from growth. Imports were boosted by equipment purchases associated with data centre fit-outs. Exports were hampered by adverse weather that held back resources shipments.
