Australia’s economy accelerates in 2Q2025 driven by household spending

Australia’s economic growth accelerated in the 2Q2025 led by household consumption as easier monetary policy underpinned activity. Gross domestic product advanced 0.6% in the three months through June, faster than the predicted 0.5% and double the upwardly revised pace in the prior quarter, data from the Australian Bureau of Statistics showed Wednesday. The 1.8% annual expansion compared with a forecast 1.6% gain. The figures “should put to bed fears around growth tailing off” and likely keep the Reserve Bank on hold in September, said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities in Singapore. “Employment would need to be a shocker for the RBA to cut at the end of this month.”

The result is slightly higher than the RBA’s expectation and prompted the currency to reverse losses while the yield on policy sensitive three-year government bonds extended an earlier gain. Money markets maintained expectations the bank will stay on hold in September and cut in November. The GDP figures show interest-rate cuts are feeding through to households and firms and will give the RBA greater confidence in the economy’s capacity to grow without relying as much on additional fiscal support.

Even so, the report indicates the broader economy is underperforming compared with its 20-year pre-pandemic average of almost 3%. The RBA’s latest forecasts see GDP rising 1.7% this year, a pace that falls short of its downgraded assumption for the economy’s long-run potential growth. The central bank last month cut the cash rate to 3.6%, in its third reduction for the year and signaled a couple more cuts will be needed to meet its employment and inflation objectives. The RBA judges that policy remains “still somewhat restrictive” even with the cash rate now at the lowest level
since April 2023.

The RBA is trying to assess how much further it can ease in an environment of a still-tight labor market and poor productivity growth. “End of financial year sales and new product releases contributed to rises in discretionary spending on goods including furnishings and household equipment, motor vehicles and recreation and culture goods,” Tom Lay, ABS head of national accounts, said in a statement.

Public investment fell 3.9% and was the largest detractor from growth, the ABS said, adding that excluding the Covid period, this was the largest fall since September 2017. Australia’s productivity performance is trailing much of the developed world and the center-left Labor government convened a gathering of business leaders, trade unions government officials and other experts last month to generate ideas to help reverse that trend.

Treasurer Jim Chalmers highlighted 10 areas of consensus and has already announced plans to scrap a number of so-called “nuisance tariffs.” Yet while the government can try to create the conditions for stronger productivity, the private sector will also need to play its part.

The GDP data spanned a period of global volatility and some domestic uncertainty. President Donald Trump unveiled his initial tariff plans, causing upheaval in markets, while Australia was in the middle of an election campaign that had seemed tighter than the landslide victory eventually won by the ruling Labor Party in early May. Australia’s economic growth has been anemic in recent times with output per person declining for seven consecutive quarters through 2023 and much of 2024, a sign of falling living standards.

Australia’s economy accelerates in 2Q2025 driven by household spending

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