Q2 GDP Partials & Forecast Update
Net exports mask softer domestic demand.
Q2 GDP Forecast Update
Australia’s economy stayed stuck in the slow lane, with GDP expected to rise just 0.3%qtr and 1.8%yr in Q2. We expect the June quarter National Accounts to confirm that growth has returned to the subdued pace seen through late 2024 and early 2025.
We have revised our Q2 GDP nowcast slightly higher (+0.3%qtr vs +0.2%qtr) following a stronger-than-expected contribution from net exports. Services imports fell almost 5.0%qtr, the sharpest decline since the pandemic (or the June quarter 2020), as households and businesses shelved travel plans amid the conflict in the Middle East. As a result, net exports are now expected to contribute 0.1ppt to GDP growth in Q2, a marked improvement from the 0.3ppt drag we anticipated in our Q2 GDP preview.
The stronger contribution from net exports was partly offset by softer growth in domestic demand and an unexpected rundown in inventories, particularly in the mining sector. Public demand surprised on the downside, reflecting a decline in public investment as the infrastructure pipeline has now clearly passed its peak, particularly in NSW and Victoria. Public demand is now growing at just 0.7%yr in six-month annualised terms, well below the pre-pandemic decade average of 3.2%yr. The outright decline in public infrastructure investment is likely releasing capacity that can be redeployed into other construction-related activities, including dwelling investment and data centre construction.
The fall in services imports, which includes international holiday travel, has also led to a modest downgrade to expected growth in household consumption in Q2, from 0.5%qtr to 0.4%qtr. Finally, inventories are now expected to detract 0.1ppt from Q2 GDP growth rather than make a flat contribution.
Given this update, the domestic demand impulse (spending by consumers, businesses and governments) is now estimated to have grown 0.3%qtr in Q2 and 3.1% over the year, marking the softest quarterly increase since December quarter 2023. This is around 0.2ppts weaker than we anticipated in our Q2 GDP preview.
The combined contribution from the external sector and inventories is now expected to be flat in Q2, a notable improvement from the 0.3ppt drag anticipated in our preview.
As always, these “partial” indicators should be treated with caution. They are not always a reliable guide to National Accounts components, and there are significant areas of activity for which regular partial measures are not available.
Public Demand
Growth in total public demand fell short of our expectation, lifting 0.2% in Q2, marking yet another sluggish reading following Q1’s decline of –0.5%.
Public consumption rose 0.6%qtr, slightly below our expectation but firmer than Q1’s decline of –0.5%qtr (revised down from –0.2%qtr) which was associated with the conclusion of the Federal Government’s Energy Bill Relief Fund. In Q2, the lift in public consumption was broadly based across both national and state/local levels, up 0.6%qtr and 0.5%qtr respectively. At the national level, the increase in government spending in the quarter was centred on non-defence related categories. Structural spending in programs such as the NDIS and a range of cost-of-living measures rolled out by Federal and State governments, including free public transport initiatives introduced in response to higher fuel prices, would have contributed positively during the quarter. Despite the lift in the quarter, public consumption is growing just 2.2% in year-ended terms, well down on the pre pandemic decade average of 3.5%yr.
However, total public investment was the main disappointment in Q2, falling –1.3% (note that the fall in new investment is likely smaller as total investment includes second hand asset purchases). The decline was driven by the general government sector, specifically a significant pull-back in national non-defence investment (–13.3%qtr), while public investment at the state/local level and from public corporations was little changed. We had anticipated a soft result given partial indicators to date showed public infrastructure works had fallen in the quarter as a number of major transport and energy projects were completed. In the event, however, the scale of the decline was larger than we had pencilled in, while defence investment did not provide an offset in the quarter, instead falling –2.7%qtr.
Looking ahead, public demand is unlikely to support growth in a meaningful way. Fiscal conditions are tightening, while higher yields are increasing borrowing costs, with government borrowing rising to almost $25 billion in the June quarter 2026, from $17 billion a year ago.
External Sector
Balance of Payments data showed that net trade supported growth in the June quarter, contrary to our expectation of a 0.3ppt detraction. After detracting 0.7ppt from GDP growth in the March quarter, net trade added 0.1ppt this time. As expected, goods trade was a drag, but services imports surprised significantly to the downside.
Total exports rose by 0.8%qtr, as goods exports (1.4%qtr) benefited from a recovery in major commodity outflows, particularly coal exports (11.8%qtr), after weather disruptions in Q1. Manufactured goods exports jumped 5.0%, but other major export categories were weaker – for example, rural goods exports fell more than 3%qtr, while non-monetary gold recorded a 4.1%qtr contraction.
Services exports declined 1.5%. The data highlighted two distinct themes. The first was a decline in tourism, which fell for a third quarter in a row. The second centred on education exports, which account for around 40% of total services exports and have grown very rapidly over the past 10–15 years. With the government having tightened student visa rules, the number of international students is now falling, gradually dragging education exports down with it. It has now decreased for a fourth consecutive quarter, by 1.0%qtr.
Imports rose 0.5%qtr, thanks to a 2.4%qtr increase in goods imports. As expected, Automated Data Processing (ADP) equipment imports fell by about a quarter, following an 85% increase at the start of the year. The sharp adjustment was consistent with the message from last week’s capex data, which highlighted a retreat in datacentre investment after a surge in Q1. It also matches our expectation that investment flows in this area are likely to come in fits and starts.
Data for fuel and vehicle imports highlighted the impact of the global energy price shock. Fuel imports rose by 42.5% in nominal terms. Most of that jump was accounted for by price effects, but fuel import volumes were also up, by 5.7%qtr, despite the global oil supply shortages. Meanwhile, consumers reacted to the spike in fuel prices by switching to EVs, most of which are imported from China. As a result, non-industrial transport equipment imports jumped by more than a third, leaving total consumption goods imports up 7.4%qtr.
On the services side, imports plummeted almost 5.0%qtr. This was mainly due to a 12% correction in tourism, likely reflecting the impact from the Middle East conflict, which seems to have disrupted Aussie holidays abroad much more than the inbound tourism.
In nominal terms, the current account deficit widened further in the June quarter, by almost $2bn, less than we had expected. Following the downward revision to the March quarter deficit, this left the June quarter deficit at $27.2bn, equivalent to around 3.7% of GDP. The deterioration was accounted for by a narrowing in the goods trade balance to $2.2bn, partly offset by an improvement in the services balance to -$7.3bn. Meanwhile, the primary income deficit remained little changed, as the improvement in returns on foreign assets was offset by a similar increase in returns on foreign-owned assets in Australia.
Stay informed with Westpac IQ
Get the latest reports straight to your inbox.
Related articles
Business Indicators, June Quarter 2026
Australia and NZ Weekly 31 August 2026
Australia and NZ Weekly 31 August 2026
Browse topics
Disclaimer
©2026 Westpac Banking Corporation ABN 33 007 457 141 (including where acting under any of its Westpac, St George, Bank of Melbourne or BankSA brands, collectively, “Westpac”). References to the “Westpac Group” are to Westpac and its subsidiaries and includes the directors, employees and representatives of Westpac and its subsidiaries.
Things you should know
We respect your privacy: You can view the New Zealand Privacy Policy here, or the Australian Group Privacy Statement here. Each time someone visits our site, data is captured so that we can accurately evaluate the quality of our content and make improvements for you. We may at times use technology to capture data about you to help us to better understand you and your needs, including potentially for the purposes of assessing your individual reading habits and interests to allow us to provide suggestions regarding other reading material which may be suitable for you.
This information, unless specifically indicated otherwise, is under copyright of the Westpac Group. None of the material, nor its contents, nor any copy of it, may be altered in any way, transmitted to, copied of distributed to any other party without the prior written permission of the Westpac Group.
Disclaimer
This information has been prepared by Westpac and is intended for information purposes only. It is not intended to reflect any recommendation or financial advice and investment decisions should not be based on it. This information does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter into a legally binding contract. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision.
This information may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure this information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of this information, or otherwise endorses it in any way. Except where contrary to law, Westpac Group intend by this notice to exclude liability for this information. This information is subject to change without notice and none of Westpac or its related entities is under any obligation to update this information or correct any inaccuracy which may become apparent at a later date. This information may contain or incorporate by reference forward-looking statements. The words “believe”, “anticipate”, “expect”, “intend”, “plan”, “predict”, “continue”, “assume”, “positioned”, “may”, “will”, “should”, “shall”, “risk” and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Past performance is not a reliable indicator of future performance, nor are forecasts of future performance. Whilst every effort has been taken to ensure that the assumptions on which any forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from any forecasts.
Conflicts of Interest: In the normal course of offering banking products and services to its clients, the Westpac Group may act in several capacities (including issuer, market maker, underwriter, distributor, swap counterparty and calculation agent) simultaneously with respect to a financial instrument, giving rise to potential conflicts of interest which may impact the performance of a financial instrument. The Westpac Group may at any time transact or hold a position (including hedging and trading positions) for its own account or the account of a client in any financial instrument which may impact the performance of that financial instrument.
Author(s) disclaimer and declaration: The author(s) confirms that (a) no part of his/her compensation was, is, or will be, directly or indirectly, related to any views or (if applicable) recommendations expressed in this material; (b) this material accurately reflects his/her personal views about the financial products, companies or issuers (if applicable) and is based on sources reasonably believed to be reliable and accurate; (c) to the best of the author’s knowledge, they are not in receipt of inside information and this material does not contain inside information; and (d) no other part of the Westpac Group has made any attempt to influence this material.
Further important information regarding sustainability-related content: This material may contain statements relating to environmental, social and governance (ESG) topics. These are subject to known and unknown risks, and there are significant uncertainties, limitations, risks and assumptions in the metrics, modelling, data, scenarios, reporting and analysis on which the statements rely. In particular, these areas are rapidly evolving and maturing, and there are variations in approaches and common standards and practice, as well as uncertainty around future related policy and legislation. Some material may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. There is a risk that the analysis, estimates, judgements, assumptions, views, models, scenarios or projections used may turn out to be incorrect. These risks may cause actual outcomes to differ materially from those expressed or implied. The ESG-related statements in this material do not constitute advice, nor are they guarantees or predictions of future performance, and Westpac gives no representation, warranty or assurance (including as to the quality, accuracy or completeness of the statements). You should seek your own independent advice.
Additional country disclosures:
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). You can access Westpac’s Financial Services Guide here or request a copy from your Westpac point of contact. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice.
New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac (NZ division) or Westpac New Zealand Limited (company number 1763882), the New Zealand incorporated subsidiary of Westpac ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. WNZL is not an authorised deposit-taking institution for the purposes of Australian prudential standards. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz.
Singapore: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients of this material in Singapore should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore.
Fiji: Unless otherwise specified, the products and services for Westpac Fiji are available from www.westpac.com.fj © Westpac Banking Corporation ABN 33 007 457 141. This information does not take your personal circumstances into account and before acting on it you should consider the appropriateness of the information for your financial situation. Westpac Banking Corporation ABN 33 007 457 141 is incorporated in NSW Australia and registered as a branch in Fiji. The liability of its members is limited.
Papua New Guinea: Unless otherwise specified, the products and services for Westpac PNG are available from www.westpac.com.pg © Westpac Banking Corporation ABN 33 007 457 141. This information does not take your personal circumstances into account and before acting on it you should consider the appropriateness of the information for your financial situation. Westpac Banking Corporation ABN 33 007 457 141 is incorporated in NSW Australia. Westpac is represented in Papua New Guinea by Westpac Bank - PNG - Limited. The liability of its members is limited.
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. The services and products referenced above are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). In accordance with APRA's Prudential Standard 222 'Association with Related Entities', Westpac does not stand behind WCM other than as provided for in certain legal agreements between Westpac and WCM and obligations of WCM do not represent liabilities of Westpac.
This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. Transactions by U.S. customers of any securities referenced herein should be effected through WCM. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.
The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person of WCM or any other U.S. broker-dealer under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.
UK: The London branch of Westpac is authorised in the United Kingdom by the Prudential Regulation Authority (PRA) and is subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the PRA (Financial Services Register number: 124586). The London branch of Westpac is registered at Companies House as a branch established in the United Kingdom (Branch No. BR000106). Details about the extent of the regulation of Westpac’s London branch by the PRA are available from us on request.
This communication is not being made to or distributed to, and must not be passed on to, the general public in the United Kingdom. Rather, this communication is being made only to and is directed at (a) those persons falling within the definition of Investment Professionals (set out in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)); (b) those persons falling within the definition of high net worth companies, unincorporated associations etc. (set out in Article 49(2)of the Order; (c) other persons to whom it may lawfully be communicated in accordance with the Order or (d) any persons to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents. In the same way, the information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Conduct Authority and is not intended for “retail clients”. Westpac expressly prohibits you from passing on the information in this communication to any third party.
European Economic Area (“EEA”): This material may be distributed to you by either: (i) Westpac directly, or (ii) Westpac Europe GmbH (“WEG”) under a sub-licensing arrangement. WEG has not edited or otherwise modified the content of this material. WEG is authorised in Germany by the Federal Financial Supervision Authority (‘BaFin’) and subject to its regulation. WEG’s supervisory authorities are BaFin and the German Federal Bank (‘Deutsche Bundesbank’). WEG is registered with the commercial register (‘Handelsregister’) of the local court of Frankfurt am Main under registration number HRB 118483. In accordance with APRA’s Prudential Standard 222 ‘Association with Related Entities’, Westpac does not stand behind WEG other than as provided for in certain legal agreements (a risk transfer, sub-participation and collateral agreement) between Westpac and WEG and obligations of WEG do not represent liabilities of Westpac. Any product or service made available by WEG does not represent an offer from Westpac or any of its subsidiaries (other than WEG). All disclaimers set out with respect to Westpac apply equally to WEG.
This communication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
This communication contains general commentary, research, and market colour. The communication does not constitute investment advice. The material may contain an ‘investment recommendation’ and/or ‘information recommending or suggesting an investment’, both as defined in Regulation (EU) No 596/2014 (including as applicable in the United Kingdom) (“MAR”). In accordance with the relevant provisions of MAR, reasonable care has been taken to ensure that the material has been objectively presented and that interests or conflicts of interest of the sender concerning the financial instruments to which that information relates have been disclosed.
Investment recommendations must be read alongside the specific disclosure which accompanies them and the general disclosure which can be found here. Such disclosure fulfils certain additional information requirements of MAR and associated delegated legislation and by accepting this communication you acknowledge that you are aware of the existence of such additional disclosure and its contents.
To the extent this communication comprises an investment recommendation it is classified as non-independent research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and therefore constitutes a marketing communication. Further, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research.