Household spending drives growth, but inflation and productivity concerns persist
Australia’s economy grew at a faster pace in the final quarter of 2024, driven by an increase in household spending, but concerns over inflation and trade pressures continue to cloud the outlook.
Data released by the Australian Bureau of Statistics on Wednesday showed that gross domestic product (GDP) expanded by 0.6% in the December quarter, doubling the 0.3% growth recorded in the previous three months. On an annual basis, the economy grew by 1.3%, surpassing the Reserve Bank of Australia’s (RBA) 1.1% projection.
For the first time in nearly two years, GDP per capita posted a modest 0.1% rise, following seven consecutive quarters of decline. Economists attributed this improvement to a slowdown in population growth.
“The low point of Australia’s economic cycle has now passed, with some green shoots appearing,” said Stephen Smith, a partner at Deloitte Access Economics. “However, this firming outlook represents the economy kicking into gear rather than firing on all cylinders. Unless more is done to encourage private sector growth and investment, there’s limited upside to the economic turnaround.”
'Modest growth was seen broadly across the economy this quarter,' Katherine Keenan, ABS head of national accounts
— Australian Bureau of Statistics (@ABSStats) March 5, 2025
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The RBA expects GDP growth to accelerate to 2.4% by the end of 2025. In February, the central bank cut interest rates for the first time in four years, lowering the cash rate to 4.1% as inflation trends closer to the bank’s 2-3% target. While monetary policy remains tight, analysts suggest further easing could provide additional support for economic activity.
Despite the recent pickup, overall economic performance remains below its long-term trend. Bob Cunneen, a senior economist at MLC Asset Management, noted that government spending has played a key role in sustaining growth. Public sector expenditure rose by 0.7% in the quarter, according to the ABS data.
Productivity indicators remained weak, with GDP per hour worked declining for a third straight quarter. Meanwhile, non-farm unit labour costs, adjusted for inflation, remained high. The implicit price deflator in the data also pointed to lingering inflationary pressures.
The latest figures showed some positive trends. ABS head of national accounts Katherine Keenan noted that the quarterly growth was supported by both private and public sector spending. The household savings rate increased slightly to 3.8%, up from 3.6%. Household spending rose by 0.4% in the December quarter after stagnating in the previous three months.
Keenan said discretionary spending increased as consumers took advantage of retail sales and spent more on hospitality, entertainment, and sporting events.
Private investment in residential construction declined by 0.4% as cost and labour constraints continued to weigh on the sector.
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