Australia’s Economy Expands as Growth Accelerates in Q4

Australia’s economy grew by 1.3% year-on-year in the fourth quarter, marking its first acceleration since September 2023.

GDP Growth Exceeds Expectations

GDP growth surpassed economists’ expectations of a 1.2% rise, as polled by Reuters, and also exceeded the Reserve Bank of Australia’s (RBA) forecast of 1.1%. The Australian Bureau of Statistics described the growth as “modest but broad-based,” citing contributions from both public and private expenditure, as well as increased exports.

On a quarter-on-quarter basis, GDP rose 0.6%, ahead of the expected 0.5% increase. This marks Australia’s fastest growth since Q3 2022.

RBA’s Monetary Policy and Growth Outlook

The latest GDP data follows the RBA’s recent rate cut, its first in over four years, in response to economic sluggishness and easing inflation. The central bank expects GDP growth to pick up in 2025, with private demand rising due to stronger household consumption.

According to the RBA’s latest Statement on Monetary Policy, GDP growth is forecast to reach 2.4% in 2025 and 2.3% in 2026.

Inflation and Interest Rate Projections

Headline inflation is projected to rise to 3.7% by the end of 2025 before easing to 2.8% in 2026. The RBA’s forecast is based on expectations that its benchmark policy rate, or “cash rate,” will decline to 3.6% by December 2025 and further to 3.5% by December 2026.

Market Reaction and Economic Concerns

Following the GDP announcement, Australia’s S&P/ASX 200 stock index dropped 1.02%, while the Australian dollar weakened to 0.6250 against the U.S. dollar.

Economist My Bui of AMP noted that while the growth rate remains below the long-term trend, it signals a turning point for the Australian economy. However, she cautioned that the recovery remains fragile, with government spending driving most of the growth and consumer spending propped up by promotions.

“In addition, the sustainability of growth is still in doubt as productivity still hasn’t picked up, while rates are clearly still at a restrictive level,” she wrote. She also warned that trade war tensions could present additional downside risks.

Bui predicts that the RBA will hold rates in March before cutting in May.

A Cautious Economic Recovery

While Australia’s GDP growth shows signs of improvement, uncertainties surrounding productivity, trade tensions, and restrictive interest rates raise concerns about the sustainability of the recovery. The RBA’s future policy decisions will be crucial in shaping the country’s economic trajectory.