Q4 GDP First Impressions: consumers underwhelm and supply surprises positively

By Pat Bustamante Senior Economist, Westpac

The downside surprise was concentrated in consumption; elsewhere, the data were largely as expected.

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Domestic demand momentum remains solid and, at 2.9%yr, is running above our estimate of the economy’s potential growth rate of around 2¼%. What had been framed as a handover from public to private sources of growth now looks more like a temporary breather in public demand, with both public and private spending again contributing to growth. In Q4, public spending contributed 0.4ppt to GDP growth (+0.2ppt from inventories and +0.2ppts from consumption and new investment), broadly in line with the 0.5ppt contribution from private spending (0.2ppt from inventories and 0.3ppt from consumption and new investment).
Relative to our initial preview, volatile components of GDP, including inventories, accounted for much of the upside surprise in the headline outcome. Importantly, this largely reflects a payback from the previous quarter, when public and mining inventories were run down and subtracted around 0.5ppt from GDP growth, rather than a material improvement in underlying momentum. Abstracting from this volatility, the economy appears to be growing at around 2.4%yr, close to the RBA’s February forecast of 2.3%yr.
While the strength in demand was broadly anticipated, the extent of the pick-up in productivity was a positive and unexpected development. Total productivity rose 1.0%yr in Q4, with market‑sector productivity (ex‑mining) up 1.1%yr. This has helped slow growth in the economy’s cost base, with growth in unit labour cost easing to below 4%yr for the first time since the pandemic and now running at 2019 rates (3.3%yr across the whole economy and around 3.1%yr in the market sector ex‑mining). This moderation is consistent with gradually easing labour‑market conditions through 2025. Whether this improvement can be sustained remains uncertain. A re‑tightening in labour‑market conditions could see wages growth and hours worked re‑accelerate, placing renewed upward pressure on costs and risking a reversal of recent progress. So far, though, this re-tightening is not yet in evidence.

The detail 

The December quarter National Accounts show Australia’s recovery accelerated over the final quarter of 2025, with the economy expanding 0.8%qtr to be up 2.6%yr in year‑ended terms. The quarterly outcome was in line with the median market expectation, but softer than Westpac Economics’ final nowcast of 1.1%qtr, on the back of softer than expected household consumption (1.0%qtr expected v 0.3%qtr outcome). Revisions to previous quarters saw the year-ended outcome come in at 2.6% over 2025, which was bang on Westpac Economics’ nowcast, and stronger than the 2.3%yr expected by the market.

Domestic demand (spending by consumers, businesses, and governments) grew 0.4%qtr in Q4 and 2.9% in year‑ended terms – the strongest year-ended growth since the June quarter 2018 (outside the pandemic). There was no need for a ‘handover’ with both the private and public sectors contributing to the pick-up in domestic demand.

New private demand grew a strong 0.8%qtr and 3.2% in year-ended terms. Consumer spending posted a surprise slowing in the quarter increasing just 0.3%qtr and 2.4%yr. Electricity rebates reduced consumer spending by around 0.2ppts in Q4. With population growth projections running at 1.6%yr, this implies consumption per capita has started to post sizable increases. The Aussie consumer continues to be supported by rising real incomes which grew 1.0%qtr and 3.7%yr.

New business investment came in a touch stronger than expected at +0.5%qtr and +4.4%yr (compared to +0.2%qtr, +3.5%yr). Investment increases were recorded across most of the asset classes, including new building (2.0%qtr and 8.9%yr) and new engineering construction (+0.5%qtr and -1.8%yr), which was partly offset by a 1.1%qtr fall in machinery and equipment.

Housing construction activity grew 0.6%qtr and 5.5%yr, broadly in line with our expectations (+0.7%qtr, +5.4%yr). The quarterly outcome was driven by the construction of new dwellings (1.1%qtr), with renovation activity falling 0.3%qtr. There remains a healthy pipeline of projects to work through, which should support housing construction activity going forward.

Net exports and inventories were in line with expectations with the more volatile components of GDP contributing around 0.3ppts to growth in Q4. The build-up in mining and public sector inventories contributed around 0.4ppts to Q4 growth, while net exports detracted 0.1ppts.

Note, the statistical discrepancy detracted 0.2ppt from growth over the quarter, compared to a flat contribution last quarter.

It’s not only demand, supply is also responding

Labour productivity bounced to grow 1.0%yr. Digging a little deeper, we estimate that productivity in the market (ex-mining) sector grew at around 1.1%yr in Q4 (estimates will be finalised after Friday’s Labour Accounts).

This has helped slow growth in the economy’s cost base, with growth in unit labour cost easing to below 4%yr for the first time since the pandemic and now running at 2029 rates (3.3%yr across the whole economy and around 3.1%yr in the market sector ex‑mining).

Q4 GDP First Impressions: consumers underwhelm and supply surprises positively

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