Key takeaways

Australia's economy grew 0.2% in 1Q25 and 1.3% year-on-year.
Growth muted as public spending recorded the largest detraction since 3Q17.
We expect the RBA to stay on hold at the July meeting as it awaits 2Q25 CPI data.

Australia’s economy grew by just 0.2% in the March quarter 2025, confirming a subdued economic backdrop that continues to weigh on confidence and activity. Annual growth came in at 1.3% (seasonally adjusted, chain volume measure), reflecting ongoing softness in domestic demand and the drag from adverse weather events. These disruptions not only impacted household consumption and business investment but also contributed to a sharp detraction in public spending—the largest since 2017—and a hit to exports across key sectors like mining, tourism, and shipping. While GDP growth remains soft, the increase in household savings suggests some financial resilience, but weak per capita growth highlights ongoing pressures on living standards. 

 

The public sector, which had been the driver of growth until recently, detracted the most since September 2017. Public investment fell (-0.1ppt) while government expenditure remained flat. State and local governments spent less on social benefits to households for energy bill relief. This was offset by more Commonwealth government spending on defence. On the other hand, Commonwealth spending on social benefits to households remained low.   

The terms of trade edged up slightly, as export prices rose by 2.7% and import prices by 2.6%. Export prices were boosted by stronger iron ore prices, thanks to steady Chinese demand and weather-related supply issues, along with higher prices for non-monetary gold and rural goods due to global demand. However, coal prices continued to fall, offsetting some of the gains. Import prices increased mainly due to the weaker Australian dollar. Prices for capital and intermediate goods went up, while consumer goods prices stayed flat, with falls in car and medicine prices following routine annual reviews.

Net trade detracted 0.1 percentage points from GDP growth, as exports fell 0.8% and imports dropped 0.4%. Service exports declined sharply due to slower growth in international student numbers and reduced spending per student, while goods exports were hit by weather-related disruptions to coal and LNG, and weaker demand from China and Japan. Imports of capital goods eased after earlier strength, and travel services fell as Australians opted for cheaper, closer destinations. A surge in non-monetary gold exports partly offset the overall export decline.

The household saving to income ratio rose to 5.2% as incomes grew faster than spending. Gross disposable income increased by $9.9 billion, driven mainly by higher wages, as well as government support payments and insurance claims following cyclone and flood damage in Queensland and New South Wales. At the same time, payments such as mortgage interest fell slightly, helping boost savings. However, household spending still rose by $3.7 billion, due to higher prices and volumes, which partially offset the gains in savings.

 

Household consumption rose by 0.4% in the quarter, led by essential spending mainly due to a sharp 10.2% jump in electricity, gas and fuel costs. This was driven by hotter-than-usual summer weather boosting power use, and reduced government electricity rebates. Food prices also went up by 0.8% as supermarket supply issues eased and consumers stocked up ahead of weather disruptions. Meanwhile, discretionary spending rose more modestly by 0.3%, after strong retail activity in the previous quarter. However, there was still solid growth in car purchases and spending on recreation and culture.

Industry Performance

Australia’s GDP growth in the March quarter was supported by strong contributions from sectors such as Agriculture, Administrative Services, and Information Media and Telecommunications. Agriculture grew by 4.3%, led by elevated livestock production, while Administrative and Support Services rose 1.9% due to a lift in recruitment and labour hire activity. Information and telecom services expanded 2.1%, with rising demand for broadcasting and telecommunications. Construction (0.8%), Financial Services (0.8%), and Arts and Recreation (0.9%) also made positive contributions, underpinned by housing activity, lending growth, and sports and recreation events. Wholesale trade (1.0%) benefited from strong motor vehicle and cereal grain demand, while moderate gains were seen in electricity, gas, and real estate services.

On the downside, Mining was the largest drag on GDP, contracting by 2.0% due to widespread weather-related disruptions across coal, gas and iron ore production. Manufacturing also declined (-0.7%) as transport equipment and refinery output fell, only partly offset by metals production. The transport sector shrank 0.2%, with rail and air services affected by bad weather and subdued international travel. Retail and hospitality sectors slipped slightly, reflecting soft demand in household goods and food services. Professional services also weakened, driven by a slowdown in consulting and design activity. Overall, the economy showed resilience in parts, but several weather-hit and demand-sensitive industries weighed on national output.

State-by-State Performance

Economic performance in the March quarter varied across states, shaped by differing trends in household spending, public investment, and business activity. Government infrastructure investment boosted growth in some regions, particularly South Australia and the ACT, while public spending declined in others like NSW and Queensland. Private sector investment was mixed homebuilding and construction held up well, but machinery and equipment investment weakened in several states. Household consumption showed modest growth overall, with strength in recreation, energy, and vehicle spending, though discretionary categories such as furnishings and tobacco saw declines. The following breakdown outlines how each state performed.

New South Wales saw spending edge down, with overall consumption falling 0.1% due to a drop in state and local government spending. Household spending rose slightly, led by recreation, financial services, and clothing, but was dragged down by lower spending on furnishings, vehicle running costs, and tobacco. Business investment picked up slightly, supported by growth in home renovations and new buildings, though machinery and equipment spending fell. Public investment declined, mostly due to reduced state and local infrastructure activity.

Victoria saw a 0.5% rise in consumption, driven by higher household spending on energy, vehicles, and leisure, alongside modest growth in government spending. Business investment fell 1.3%, weighed down by weaker machinery and equipment purchases, lower engineering activity, and a drop in property transfer costs. However, there was some support from new home building and renovations. Public investment also declined, largely due to lower spending by state-owned corporations.

Queensland saw consumption grow by 0.2%, as households sharply increased spending on electricity, food, and recreation, although this was partly offset by declines in vehicle costs, furnishings, and dining out. Government spending fell. Business investment rose strongly, underpinned by a surge in engineering construction, machinery purchases, and residential building activity, though transfer costs fell. Public investment dipped slightly, reflecting reduced general government and Commonwealth activity.

Western Australia recorded a 0.4% lift in consumption, mainly driven by government spending, while household spending was flat. Increases in rent, recreation, and financial services were offset by declines in energy bills, vehicle running costs, and tobacco. Business investment rose 2.5%, led by growth in engineering projects, machinery purchases, and home building. However, public investment fell sharply due to a large drop in state and local infrastructure activity by public corporations.

South Australia’s consumption rose 0.4%, with households spending more on electricity, vehicles, and recreation, though some of this was offset by declines in tobacco, alcohol, and health spending. Government consumption fell slightly. Business investment increased solidly, supported by gains across engineering construction, dwellings, and machinery. Public investment also rose strongly, driven by state and local government spending on infrastructure.

Australian Capital Territory’s spending in the ACT was flat overall, as a small rise in household consumption—led by food, energy, and recreation—was offset by a decline in government spending. Business investment dropped, with a sharp fall in homebuilding and property transfer costs. However, public investment surged, with notable increases in both national government projects and local infrastructure spending by public corporations.

 

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact Devika Shivadekar.

Devika Shivadekar

Devika Shivadekar, our seasoned economist, boasts extensive expertise in macro-economic and financial research across APAC. With over 8 years of experience, including roles at the Reserve Bank of India and a top investment bank, she now excels at RSM, aiding middle-market clients in making informed business decisions.

Her passion lies in simplifying economic data for clients' comprehension. Devika closely monitors macroeconomic indicators, such as growth and inflation, to gauge economic health. Get in touch with Devika >

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