Australia's GDP growth slows to 0.2% in march 2025 amid declining household spending
Shreeaa Rathi | Jun 04, 2025, 22:43 IST
( Image credit : TIMESOFINDIA.COM, TOIGLOBAL )
In the first quarter of 2025, Australia experienced a sluggish GDP growth of just 0.2%, down from 0.6% in the previous quarter. Annual growth held steady at 1.3%. The economy faced challenges with lackluster household spending, a dip in private investment, and a decline in trade and government expenditure.
Australia's GDP growth slowed to 0.2% in the March quarter of 2025, down from 0.6% in the December quarter, with annual growth remaining at 1.3%, according to Greg Jericho. This weak growth led to a continued decline in per capita GDP, marking the ninth quarter out of the past 11. Household spending remained subdued, private investment fell, trade deteriorated, and government spending declined, impacting the overall economic performance. Despite the slowdown, household living standards improved slightly due to a minor decrease in mortgage repayments following a rate cut in February.
The March GDP figures were foreshadowed by early indicators. Household spending was flat, a stark contrast to the 1.6% increase in the December quarter of the previous year. Private capital expenditure also declined by 0.1%, compared to a 0.2% rise in the prior quarter. Trade was expected to "detract 0.1%pts from the March quarter” compared with adding 0.2%pts in December. Government spending and investment also fell, detracting 0.1%pts from GDP growth, a reversal from the 0.2%pts contribution in the previous quarter.
"In the March quarter of this year, GDP growth was just 0.2%, down from 0.6% in the December quarter," Greg Jericho writes.
The Reserve Bank of Australia (RBA) had previously anticipated a sustained pick-up in GDP growth. However, the minutes of the May board meeting indicated a revised assessment. The RBA suggested that “GDP growth had increased in the December quarter 2024 and year-ended growth looked to have picked up a little further in the March quarter”. This assessment contrasts with the actual figures, as the annual growth remained steady at 1.3%.
The May Statement on Monetary Policy projected annual GDP growth of 1.8% by June. Achieving this would require the economy to grow by 0.7% in April, May, and June. This would be the strongest quarter growth in three years.
Households were the largest contributor to the limited growth in the March quarter. However, their contribution was about half of what would normally be expected. A significant portion of the increase in consumption was attributed to higher spending on electricity, gas, and other fuels. This was due to the conclusion of some state government energy rebates.
Household consumption remains below pre-pandemic levels. The Reserve Bank’s interest rate rises have dampened spending.
The average discounted home loan rate remains more than 300 basis points higher than it was at the start of 2022. Small business owners face even higher overdraft loan rates, which are 400 basis points higher.
"The overall level of household spending and private-sector investment quickly rules out the use of the phrase “strong” when searching for a term to describe what is going on."
Household disposable income per capita has risen above the level it was in March 2020. This improvement in living standards was partly due to a slight decline in mortgage repayments following the February rate cut.
Since March 2022, mortgage repayments have contributed about 63% of the fall in living standards.
"That’s a sizeable chunk and it reinforces the damage that is done when the RBA so badly misreads the economy as it has."
These figures suggest the Reserve Bank should have cut rates earlier and more aggressively. The RBA has been erring on the side of caution. It is hoped that these weak figures will prompt a rate cut at the next meeting.
The March GDP figures were foreshadowed by early indicators. Household spending was flat, a stark contrast to the 1.6% increase in the December quarter of the previous year. Private capital expenditure also declined by 0.1%, compared to a 0.2% rise in the prior quarter. Trade was expected to "detract 0.1%pts from the March quarter” compared with adding 0.2%pts in December. Government spending and investment also fell, detracting 0.1%pts from GDP growth, a reversal from the 0.2%pts contribution in the previous quarter.
"In the March quarter of this year, GDP growth was just 0.2%, down from 0.6% in the December quarter," Greg Jericho writes.
The Reserve Bank of Australia (RBA) had previously anticipated a sustained pick-up in GDP growth. However, the minutes of the May board meeting indicated a revised assessment. The RBA suggested that “GDP growth had increased in the December quarter 2024 and year-ended growth looked to have picked up a little further in the March quarter”. This assessment contrasts with the actual figures, as the annual growth remained steady at 1.3%.
The May Statement on Monetary Policy projected annual GDP growth of 1.8% by June. Achieving this would require the economy to grow by 0.7% in April, May, and June. This would be the strongest quarter growth in three years.
Households were the largest contributor to the limited growth in the March quarter. However, their contribution was about half of what would normally be expected. A significant portion of the increase in consumption was attributed to higher spending on electricity, gas, and other fuels. This was due to the conclusion of some state government energy rebates.
Household consumption remains below pre-pandemic levels. The Reserve Bank’s interest rate rises have dampened spending.
The average discounted home loan rate remains more than 300 basis points higher than it was at the start of 2022. Small business owners face even higher overdraft loan rates, which are 400 basis points higher.
"The overall level of household spending and private-sector investment quickly rules out the use of the phrase “strong” when searching for a term to describe what is going on."
Household disposable income per capita has risen above the level it was in March 2020. This improvement in living standards was partly due to a slight decline in mortgage repayments following the February rate cut.
Since March 2022, mortgage repayments have contributed about 63% of the fall in living standards.
"That’s a sizeable chunk and it reinforces the damage that is done when the RBA so badly misreads the economy as it has."
These figures suggest the Reserve Bank should have cut rates earlier and more aggressively. The RBA has been erring on the side of caution. It is hoped that these weak figures will prompt a rate cut at the next meeting.