Broad-based growth signals turning point for Australia’s economy
Australia’s economic recovery is gaining traction, with a more balanced mix of private demand and government spending supporting growth.
National accounts data released today by the Australian Bureau of Statistics (ABS) show the Australian economy grew by 0.6% in the final quarter of 2024. This marks a solid improvement from the run of soft 0.1% to 0.3% quarterly figures over the past year. The December quarter print takes the annual rate of growth to 1.3% – a significant lift from the 0.8% growth seen over the 12 months to the September quarter.
While annual GDP growth remains well below the two-decade average of 2.6%, the latest data confirms the Reserve Bank of Australia's (RBA) assessment that the economy has turned a corner after nearly two years of stagnation. Notably, GDP per capita increased 0.1% in the December quarter, ending an unprecedented streak of declining living standards over seven consecutive quarters.
Overall, the economic outlook is improving. Real wage gains, supported by low unemployment, declining inflation, and tax cuts, are boosting private demand. Household consumption rebounded with 0.4% growth in the December quarter, bringing annual growth to 0.7%. The household saving ratio rose to 3.8% from 3.6%, as gross disposable income growth outpaced nominal household consumption growth.
Private investment increased by 0.3% over the quarter, driven by business investment, particularly in renewable energy and mining projects. However, dwelling investment remained weak, as cost pressures, labour shortages, and a decline in new home commencements continued to weigh on the residential construction sector.
After two quarters of not contributing to GDP growth, private demand added a solid 0.3% to quarterly GDP in December 2024. With monetary policy now in a rate-cutting cycle, the economic outlook is set to brighten further.
Chart 1: Contribution to quarterly growth in GDP, seasonally adjusted
Government spending growth moderated to 0.7% in the December quarter but remained elevated in annual terms at 5.1%. According to the ABS, increased spending by state and territory governments on essential services such as health, education, and policing contributed to this growth. Overall, public demand contributed 0.3% to quarterly GDP, down from 0.7% in the previous quarter.
The terms of trade rose by 1.7% in the quarter, reversing three consecutive declines. This was driven by a 2.5% surge in export prices, largely due to increased demand for mineral ores from steel manufacturers in China.
Looking ahead, with the economy past its low point, growth expected to rise to 1.6% in 2025 before picking up to 2.3% in 2026 and 2.7% in 2027.
However, this improving outlook signals a gradual recovery rather than a rapid acceleration. Although private demand is kicking back into gear, the economy remains reliant on public sector spending and population growth.
Productivity remains a key challenge, with GDP per hour worked declining by 0.1% in the December quarter. Without stronger private sector investment and productivity gains, the upside to this economic turnaround may be limited – especially given the increasingly uncertain global economic environment. With an election approaching, policymakers must prioritise measures that support private sector growth and long-term economic resilience.
This newsletter was distributed on 5th March 2025. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Naasha Kermani, Senior Economist at Deloitte Access Economics
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