Australia's Economy Hits a Soft Patch: GDP Growth Disappoints

With GDP up just 0.2% quarter-on-quarter and 1.3% year-on-year, Australia's economy showed weak growth in the first quarter of 2025. This year's growth rate fell below market expectations and remained stable from the previous quarter. The decrease in GDP per capita, which fell by 0.2% in the March quarter, helped explain this understated performance.

During this period, several variables influenced economic activity. With its greatest adverse effect since September 2017, government spending greatly hampered growth. Particularly impacting the mining, tourist, and shipping industries, severe weather occurrences including cyclones and bushfires also hampered local demand and exports. Moreover, slowing growth caused poor exports, partly caused by worldwide trade tensions. Household consumption increased slowly, and the household saving ratio reached 5.2%.

Responding to subdued growth and waning inflation, the Reserve Bank of Australia (RBA lowered its policy rate to 3.85 percent, a two-year low. Consumer inflation had dropped to 2.4% in the first quarter, within the RBA's target range. Driven by a recovery in consumption and sustained public demand, the RBA projects a possible increase in growth later in 2025 even if global trade volatility and weak export demand present possible risks to this view.