The modest growth in the Australian economy is being met with cautious optimism though underlying concerns persist amid global trade uncertainties and high interest rates.
Australia’s GDP grew by 0.6 per cent in the fourth quarter of 2024, following a 0.3 per cent expansion the previous quarter, according to the national accounts released by the Australian Bureau of Statistics (ABS) on Wednesday.
GDP rose by 1.3 per cent over the year, slightly below the 1.4 per cent predicted by big bank economists but slightly exceeded the market’s expectations.
“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,” said Katherine Keenan, ABS head of national accounts.
GDP per capita grew 0.1 per cent this quarter following seven consecutive quarters of falls.
“Economic growth picked up from the December quarter 2023 through to the December quarter 2024. GDP growth was up 1.3 per cent over this time,” Keenan said.
ABS data also portrayed a moderation in growth in government spending to 0.7 per cent in the December quarter following larger rises in previous quarters.
However, as a share of the economy, government spending reached a record 27.7 per cent of GDP, up from 27.6 per cent from its previous peak last quarter.
Private investment rose 0.3 per cent in the December quarter, with investment in new engineering, construction of electricity generation and distribution projects, and mining investment driving the growth.
Private investment in dwellings, however, 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.
Public investment rose 1.8 per cent, propped up by investment by state and territory governments in public transport, roads, water, and renewable electricity infrastructure.
Cautious optimism
Economists and market pundits generally recognised the modest economic recovery as positive news, but their overall tone remained one of worry due to various domestic and global challenges.
The GDP growth outcome was slightly softer than anticipated by Westpac and CBA, with both predicting an expansion of 0.7 per cent in the quarter.
Commenting on the data just hours after its release, Westpac economists Neha Sharma and Matthew Hassan said that the key takeaway is the beginning of a tentative recovery in private demand.
“This was higher than the flat outcome recorded in Q3, but still a tepid result for annual growth given population growing is tracking at a still solid 2 per cent yr. Private demand on a per capita basis continues to decline,” the pair said.
On government spending, the economists said it came in as expected and continues to rise strongly.
Overall, Sharma and Hassan said growth is improving, but still “sluggish”.
“While there will be more support from lower interest rates in 2025, the pace of easing is likely to be slow and the response from households is expected to remain fairly muted,” they said.
“A more unsettled global backdrop and upcoming Federal election will also be adding to uncertainty. And global policy uncertainty, led by trade disputes, will be additional factors charting the direction for economic activity going forward.”
VanEck’s senior portfolio manager Cameron McCormack said the modest GDP growth in an environment of tighter monetary policy indicated “the economy is heading towards recovery”.
The main question, he said, is whether this positive momentum is sustainable.
“Domestic growth concerns have eased somewhat, however Australia’s vulnerability to global trade tariffs and other geopolitical threats have the potential to stifle business activity and weaken consumer and business confidence,” McCormack said.
“While we maintain our conviction in a soft landing in Australia, elevated global trade uncertainty has added more volatility to markets in the near-term.”
Chief economist at Betashares, David Bassanese, said that while the outcome was better than the market expected, “it could hardly be described as a beautiful set of numbers”.
“The economy remains stuck in the slow lane, thanks to high interest rates bearing down on private demand,” he said.
Commenting on the narrative that solid public demand is keeping the economy out of recession, he proposed an alternative view – one in which public demand has “squeezed” out private demand.
“The continued subdued pace of economic growth suggests there is scope for the RBA to provide further interest rate relief as and when we get further evidence of declining inflation. Indeed, today’s report suggests the risk of a strong bounce back in private demand – especially consumer spending – in the absence of lower interest rates seems low,” Bassanese said, adding that his base remains that the RBA will cut interest rates in both May and August.
Krishna Bhimavarapu, APAC economist at State Street Global Advisors, similarly said “it is critical to nurture this recovery with measured rate cuts this year”.
“We expect two more cuts, with the next one likely in May,” Bhimavarapu said.
“Still, the current global macro narrative is owned lock, step, and barrel by the risk of higher global tariffs. Although we do not see today’s recovery reversing course, it remains the biggest risk, especially as the US economy seems to be slowing.”
