Resilient household spending underpinned stronger-than-expected growth in the Australian economy in the June quarter, rising by 0.4%. This slightly outpointed consensus and growth in the March quarter, both 0.3%. Annual growth, despite easing from 2.5% to 2.1%, came in above the RBA's forecast (1.9%). Ongoing weakness in productivity (-0.2%Y/Y) likely reinforces to the RBA its view that the economy is operating close to its speed limit and will need to slow for inflation to come back to the 2-3% band. Markets are pricing in an additional RBA rate hike by year-end, following the three increases the central bank has already delivered in 2026.
Household consumption (0.4%) was the main driver of growth in the June quarter. The federal excise tax cut significantly lowered petrol prices and that looks to have been a key factor in easing pressures from higher interest rates and the broader cost of living. Notably, discretionary consumption (1.4%) rose at its fastest pace in a year, despite the Middle East conflict hampering overseas travel, as the fuel price shock saw EV sales surge. Headwinds in the housing market are intensifying, but the upturn in dwelling investment (1.6%) continues, responding to last year's RBA rate cuts.
Business investment was unable to keep pace with its acceleration in the previous quarter (6.2%), posting a 0.5% decline. However, the data centre build out has much further to run, and as the chart above shows, business investment has made the largest contribution to growth over the past year. Alongside the slowdown in the latest quarter, imports pulled back. That allowed net exports to add to quarterly growth (0.1ppt), with exports in the resources sector rebounding from weather-related disruptions earlier in the year.
More to come.
