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Economists warn of ‘shaky recovery’ despite expected GDP lift
Australia’s economy is poised for a modest rebound in the June quarter driven by rising consumer spending, but some economists warn growth remains “fragile and unconvincing”.
Australia’s economy is expected to show a slight recovery in the upcoming gross domestic product (GDP) figures, set to be released on Wednesday (3 September), with some economists tipping a clear acceleration from the sluggish start to the year.
Judo Bank’s chief economic adviser Warren Hogan and economist Matthew De Pasquale have projected growth of 0.5 per cent – a solid increase on the 0.2 per cent seen in the previous quarter.
The duo expect revisions to Q1 consumer spending to lift the annual growth rate from 1.3 per cent to around 1.8 per cent in Q2, while domestic demand is expected to push annual growth above 2 per cent.
“This suggests that the Australian economy is continuing on a gradual recovery path following the significant consumer-led slowdown experienced during 2023–24,” Judo’s economists stated.
Meanwhile, ANZ senior economist Adelaide Timbrell has forecast GDP growth of 0.4 per cent in June, revised down from 0.6 per cent.
According to Timbrell, weaker-than-expected data has led to the revision – including softer business indicator results on Monday – with the bank now expecting only a small contribution from net exports (+0.1 percentage points) and no lift from public demand (+0.0 ppt).
NAB’s economics team pointed to signs of strengthening momentum to similarly predict a GDP lift of 0.4 per cent, citing a pick-up in household spending, a rise in building approvals, and an acceleration in house prices.
Credit growth and improvements in its Business Survey reinforced the bank’s view that conditions are gradually improving.
“In summary, we are encouraged by the breadth of improvement in the domestic activity data in the past month or so,” NAB said.
Westpac took a more cautious view compared to its major bank contemporaries, despite its forecast of 0.4 per cent, with senior economist Pat Bustamante warning the recovery remains “fragile and unconvincing”.
Bustamante estimated that the economy expanded just 1.3 per cent in annualised terms over the first half of 2025, down from 1.8 per cent in the second half of 2024, and added that labour market slack could build as growth shifts from public to private sources of demand.
“For some time now we have identified the risk of a ‘shaky handover’ where the gradual recovery in private demand is unable to fully offset the slack left by slowing growth in public demand,” he said.
“That is exactly what we have seen over the first half of 2025, which suggests the recovery is likely to be delayed.”
The Commonwealth Bank of Australia’s (CBA) economics team, however, revised up its forecast from 0.4 per cent to 0.5 per cent upon the release of the partial data by the Australian Bureau of Statistics on Tuesday.
“The upward revision reflects a stronger contribution from public sector inventories. A 0.5 per cent quarterly outcome would see the annual rate rise to 1.7 per cent from 1.3 per cent and reflect an improvement in private demand in the economy,” CBA’s economics team said.
“The transition from public sector-led growth to private sector growth is underway. But it might not be smooth sailing. An easing cycle by the RBA is helping the transition.
“The largest risk appears to be in the transition in the labour market.”
In its Statement on Monetary Policy – August 2025, the Reserve Bank of Australia (RBA) trimmed its outlook for Australia’s GDP growth across most of the forecast horizon, reflecting a weaker productivity profile.
According to the central bank, the anticipated pick-up in growth through 2025 is now expected to be more gradual than projected in May, as softer-than-expected public demand in early 2025 is unlikely to be offset later in the year.
Moreover, the RBA lowered its medium-term assumption for productivity growth, judging that the structural headwinds weighing on productivity in recent decades will persist over the next few years.
“This downgrade directly flows into our estimate of potential output growth and our forecast for GDP growth in 2026/2027,” the central bank stated.
Even so, year-end GDP is still expected to increase over the coming year, reaching “around its potential growth rate”, as private demand is forecast to strengthen compared to 2024, while public demand should continue to provide support.
“The forecasts are conditioned on market expectations for a cumulative 80 basis point easing in the cash rate over the next year,” the RBA said. “These and earlier reductions in the cash rate would likely support growth in private demand, which is expected to be the main driver of growth over the forecast period.”
AUTHOR
Adrian Suljanovic
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