GDP rebound dims RBA easing prospects

With the latest print of GDP figures overshooting economist expectations, analysts have warned that the Reserve Bank of Australia (RBA) could face a difficult policy path ahead.

The Australian Bureau of Statistics (ABS) reported the Australian economy grew by 0.6 per cent in the June quarter 2025, above the general consensus of around 0.4–0.5 per cent, and 1.8 per cent annually.

“Economic growth rebounded in the June quarter following subdued growth in the March quarter, which was heavily impacted by weather events,” Tom Lay, ABS head of national accounts, said.

According to the ABS, domestic final demand was the primary driver of growth during the June quarter, buoyed by strong household and government spending.

In contrast, public investment was the main hindrance to growth, declining 3.9 per cent, marking the largest fall since September 2017 (excluding pandemic-era data).

Net trade also made a positive contribution of 0.1 percentage point, driven by higher exports of mining commodities.

GDP per capita rose by 0.2 per cent for the quarter, partially reversing the decline recorded in March.

Dwyfor Evans, head of APAC macro strategy at State Street Global Markets, said the data complicates expectations of further policy accommodation.

“A better-than-expected Q2 GDP report [was] borne largely of strong household consumption,” Evans said.

“This is notable as monetary policy continues to focus on a potential domestic market slowdown, but with the jobs market robust and consumption strong, it again raises questions around the extent of policy accommodation.”

He added that above-target inflation pressures mean “prospects for rate easing will dim further”.

“This will add some support to the AUD as central banks elsewhere continue to ease and will see short-term rates back up modestly. This is another reason for the RBA to maintain a cautious stance on its policy levers,” he said.

While the uptick in growth is encouraging, VanEck senior portfolio manager Cameron McCormack said this still underscored longer-term weaknesses.

“This is the highest rate of GDP growth since September 2023; however, it is below the 0.82 per cent quarterly average based on GDP prints since 1959,” he said, flagging that weak productivity and subdued business investment as lingering obstacles.

“The federal government still has a challenge on its hands regarding low productivity growth, with private business investment benign. This is not a new problem for Australia, or for developed markets in general, however it is one of the main things holding back economic growth.”

McCormack also noted that the Reserve Bank recently downgraded its medium-term outlook for productivity from 1 per cent annual growth to 0.7 per cent, marking the first time the central bank has done so since the COVID-19 pandemic.

He added: “Treasurer Jim Chalmers recently called it the most serious economic challenge facing the economy, however we have yet to get any clarity on how the federal government proposes to tackle this issue.”

However, eToro market analyst Josh Gilbert struck a more dovish tone and stated that the figures have shown that recent rate cuts are working to support the economy.

“Australia’s economy grew faster than expected in the June quarter, providing a welcome sign that recent interest rate cuts are flowing through to households and businesses,” he said.

Gilbert added that the data “provides reassurance that [the RBA’s] policy easing is supporting growth”, though it “may temper expectations of an aggressive easing cycle, likely taking a September rate cut off the table”.

“With global uncertainty, tariff risks and varied corporate earnings – from a weak Woolworths result to a strong Qantas profit number, Australia’s recovery story is far from complete, but growth is clearly on the right path,” Gilbert said.

ANZ senior economist Adelaide Timbrell said the GDP report signalled a private sector recovery, suggesting the RBA will act carefully.

“With no contribution from public demand, this result provides strong evidence of a private sector recovery,” she said. 

“Although the data is lagged, we expect the RBA will view the GDP release as a sign that consumers are recovering, which may add caution around rate cut decisions in the near term.

“We expect one more rate cut of 25 basis points in November.”

Similarly, the Commonwealth Bank of Australia’s (CBA) economics team also continues to see another rate cut in November, along with further economic improvement with growth of around 2 per cent by the end of 2025.

“Much of this will be driven by a continued recovery in household consumption, as well as dwelling investment, as well as stabilisation in the public sector,” it said.

CBA added that further easing in 2026 “remains possible”, but would require deterioration in the labour market and an “unsteady transition from public sector-led growth to the private sector”.

Ivan Colhoun, CreditorWatch chief economist, noted that while the data “at face value” looks stronger than expected, “a variety of special factors suggest the economy is broadly idling”, and that the RBA should “deliver some extra interest rate support sooner rather than later.

“A further rate cut in September would increase in probability if the August unemployment rate was 4.4 per cent,” Colhoun said.

“The most positive aspect remains that profitability in the non-mining sector continues to broadly hold up, as the non-mining sector is where all the employment is. Productivity growth remains very slow.”

Prior to the release of the June quarter figures, Westpac senior economist Pat Bustamante warned that while there would be a lift in GDP growth, recovery remains “fragile and unconvincing”.

“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,” Bustamante said. “That is exactly what we have seen over the first half of 2025, which suggests the recovery is likely to be delayed.”