Australian GDP figures improved in Q4, although challenges remain. Interest rates are likely to be steady in the coming months unless tariffs and spending cuts start to exert pressure on global growth.
Australian real GDP growth accelerated from +0.3% in Q3 to +0.6% in the final quarter of 2024, in line with consensus forecasts.
Annual GDP growth increased from +0.8% yoy to +1.3% yoy, also in line.
Nominal GDP increased by +1.6% in Q4.
The terms of trade rose +1.7% following three consecutive falls, as export prices surged (+2.5%) due to increased demand for mineral ores from steel manufacturers following the announcement of China’s economic stimulus package. Increased prices for liquid natural gas (LNG) and rural goods were also observed due to strong demand for Australian exports. This was partly offset by an increase in import prices (+0.8%) influenced by the depreciation of the Australian dollar.
Quarterly growth in GDP per capita was +0.1% following seven consecutive quarters of declines, falling -0.7% yoy.
Productivity declined by -0.1% and -1.2% yoy as real unit labour costs rose by +0.6% (+2.3% yoy).
The household saving-to-income ratio rose to +3.8% from +3.6%.
Katherine Keenan, ABS head of national accounts, said: "Modest growth was seen broadly across the economy this quarter. Both public and private spending contributed to the growth, supported by a rise in exports of goods and services".
Household spending was up +0.4% in Q4 after a flat result in Q3.
Government spending moderated to +0.7% in Q4 after several quarters of large increases.
Public investment rose by +1.8%, outpacing private investment of +0.3%. However, private investment in dwellings fell 0.4 per cent as price and labour pressures continued to weigh on the pipeline of work, particularly for houses and alterations and additions.
The cyclical Manufacturing (-2.3%) and Construction (-1.3%) sectors saw notable declines, while utilities (+3.0%) and Transport (+3.0%) saw a strong pick-up in activity.
S&P/ASX200 8,097 -1.2%, AUDUSD 0.6256 -0.26%, Aus 2yr 3.77% +7bps, Aus 2yr 4.38% +11bps,
Fin-X Wealth View
The data shows a modest pick-up in the pace of activity across the Australian economy in Q4.
Cyclical economic activity remains under pressure. But wage increases are filtering through to households which should lead to a stronger spending outlook later in 2025.
The GDP and productivity figures are slightly better than the February estimates of +1.1% yoy and -1.9%, respectively, while household saving was broadly in line with the +3.9% forecast.
These results suggest that the RBA may have been right to push back against the market expectations of more cuts later this year, prompting a rise in yields. However, RBA Deputy Governor Andrew Hauser has given a speech this morning suggesting that overseas trade and economic policy uncertainty could lead to lower activity, requiring more cuts.
Following losses on Wall Street overnight as China, Canada and Mexico announced retaliatory measures, equity futures have risen today after Commerce Secretary Howard Lutnick suggested that the U.S. might meet Canada and Mexico somewhere “in the middle” to “work something out” on tariffs.
Some tariffs seem likely to remain in place and will inevitably restrain growth. However, we remain more focused on the work being done by DOGE and Congress to cut government spending. We expect the spending cuts to have a much larger negative impact on US GDP this year, which could create a headwind for Australia from 2026.
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