First impressions: Australian national accounts, March quarter 2025

By Pat Bustamante Senior Economist, Westpac

The Australian economy slowed significantly in the March quarter, lifting 0.2%qtr and 1.3%yr. Household spending was a touch stronger than we expected. Besides this, most of the detail in the update was in line with our updated expectations.

The Australian economy slowed significantly in the March quarter, lifting 0.2%qtr and 1.3%yr (on a par with the weakest reads since the early 1990s recession, excluding the COVID period). This outcome was a touch stronger than Westpac’s expectation of 0.1%qtr and softer than the median market expectation of 0.4%qtr. Notably, GDP per person resumed to fall, down 0.2%qtr and 0.4%yr after stabilising in Q4 last year.

In line with our updated expectations, public demand fell and the private sector struggled to pick up the slack. While one-off factors, mainly related to bad weather events in Qld and NSW, played a role, underlying momentum is undoubtedly weak.

We have spoken about the possibility of a period of subpar economic growth if the handover from the public to the private sector is ‘shaky.’ This risk has been exacerbated by global uncertainties relating to US trade policy which has weighed on confidence and the willingness to invest and spend. Without a material pick-up in private demand the economy could be set for a period of subdued growth.

Today’s Accounts also show that aggregate productivity continues to be weak down 1.0%yr, and growth in the economy’s cost base (or nominal unit labour costs) remains elevated at 6.1%yr.

This leaves policymakers stuck between supporting growth and managing inflation risks.

The detail

The main takeaway from today’s Accounts (including revisions) is that the expected tentative recovery in private demand continues to underwhelm.

After experiencing the largest decline in purchasing power on record, the consumer remains cautious and more interested in rebuilding balance sheets than boosting spending. Household consumption grew 0.4%qtr and 0.7%yr – much lower than the population growth of 1.7%yr. This is consistent with Westpac’s Consumer Panel which showed that households have saved a very high 80-85% of the windfalls from the Stage 3 tax cuts.

This persistent weakness in the consumer has spilled over into the business sector, with new business investment lifting 0.4%qtr to be 1.5%yr higher – weak by historical standards and soft in an economy where the population in growing by around 1.7%yr.

Public spending remains elevated, but as we predicted in our preview, growth has declined as we pass the peak in construction activity related to large infrastructure projects. There was also a pull back in state and local government consumption as temporary cost of living support has been wound back.

The one bright spot has been housing construction which continues to lift as the capacity constraints that have dogged the sector since COVID finally look to be dissipating. In part, the easing constraints may indirectly reflect weakness in other parts of the construction sector (such as non-residential buildings) which is freeing up resources to be used for the construction of new dwellings and housing renovations.

Net exports and inventories were broadly as expected. Net exports detracted -0.1 ppts from growth in GDP in Q1. Inventories added 0.1ppts to growth in Q1, with the private sector increasing its stock of inventories (mainly in the mining sector).

Labour productivity continued to fall in annual terms, with GDP per hour worked down -1.0%yr. Looking beyond the headline, underlying trends still suggest that aggregate productivity is being skewed by the expansion of the non-market sector and a trend decline in mining productivity. One-off disruptions clearly impacted in the March quarter as well.

Nominal unit labour costs (ULCs)  are now running at 6.1%yr, in six month annualised terms. The pickup in COE per hour work and the decline in productivity has led to a reacceleration in ULCs. The outcome in the market sector will be more benign - we will provide an update following the March quarter Labour Account, due 6 June.

First impressions: Australian national accounts, March quarter 2025

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