Breaking: Australia's economy growing at 2.5 per cent annually as slowdown begins

Australia's economy experienced a slowdown in the March quarter, with annual growth holding steady at 2.5 percent but quarterly expansion decelerating sharply. The economy grew by only 0.3 percent on a quarterly basis, a significant drop from the 0.9 percent recorded in the December quarter.

This deceleration coincided with the Reserve Bank of Australia's (RBA) decisions to increase interest rates in February and March. Grace Kim, ABS head of National Accounts, attributed the slowdown to modest household and public sector spending, alongside disruptions to mining and export activities caused by cyclones.

"Rising interest rates and significantly higher fuel costs in the March quarter likely created an environment for more cautious consumer behaviour," Kim stated. "This resulted in reduced spending across a range of household expenditure categories."

The RBA forecasts the economy to expand by 1.9 percent over the year to June, indicating expectations of further weakening in the coming months. Westpac's economics team noted that economic headwinds were already apparent before the conflict in the Middle East or the RBA's rate hikes began to significantly impact the economy. They warned of a potential quarterly contraction in the second quarter of 2026, which would mark the first such decline since the Global Financial Crisis, excluding the COVID-19 pandemic period.

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Rising interest rates and significantly higher fuel costs in the March quarter likely created an environment for more cautious consumer behaviour. This resulted in reduced spending across a range of household expenditure categories.