National Accounts: When good news is actually bad news
While today’s growth figures risk fuelling the fire of inflation, this sequel to the cost-of-living crisis may not be as traumatic for consumers and retailers as the original.
National Accounts data released today by the Australian Bureau of Statistics (ABS) shows the Australian economy grew by 0.8% in the final quarter of 2025, its strongest rate of growth since March 2023. In total, Australia’s economy grew by 2.6% in real terms in 2025.
The expansion in the December quarter was broad based with public and private demand each contributing 0.3pp to GDP growth. Investment remained strong across both sectors, building on a robust September quarter, while an acceleration in consumer spending was spurred on by Black Friday promotions and a 0.5% increase in real household disposable income over the quarter.
However, labour productivity remained flat, and with the private sector regaining momentum in late 2025, the economy is brushing up against its speed limit. A renewed uptick in inflation prompted the first interest rate hike in more than two years in February and contributed to a decline in real wages, down 0.4% in the year to December 2025.
With markets expecting further rate hikes to come in 2026, Australians could be forgiven for thinking that they have travelled back to 2022 and the start of the cost-of-living crisis. Prices are rising, mortgage costs are up, and the outlook for household finances has weakened.
Consumer confidence has been knocked as a result, a trend that is expected to be amplified by the current conflict in the Middle East. While Australia’s geographic distance is likely to shield it from direct economic disruptions, a prolonged conflict could still transmit inflationary pressures through higher energy prices, the implications of which Michelle Bullock and the RBA remain “very alert to”.
Yet this sequel to the cost-of-living crisis may not be as traumatic for consumers, or the Australian retail sector, as the original. Household balance sheets are looking healthier, and the peak of this inflation cycle is expected to be much more muted than when inflation hit 7.9% in late 2022.
After a solid end to 2025 in the December quarter - the strongest quarter for the retail sector since 2021 - most retailers should expect a period of consolidation during the first half of 2026 as consumers navigate the renewed economic headwinds.
The slowdown in growth is expected to be sharpest in discretionary sectors, including Apparel (1.5% in the year to March 2026, down from 3.0% in December) and Household goods (4.3%, down from 5.2% in December) as spending in these stores steadies following strong pre-Christmas sales.
In contrast, growth in spending at food retailers, department stores and large online retailers is expected to be more stable given that essential spending is more insulated from consumer cutbacks, and the share of online sales continues to grow.
The latest issue of Retail Forecasts highlights that a two-speed dynamic appears to be playing out in the sector. More dynamic and resilient retailers (who offer products and deals to entice consumers) have been able to capitalise on the recent increase in customer spending. However, those unable to engage customers have struggled, leading to rising defaults and insolvencies in the sector. This trend is set to continue in 2026 amidst a more cautious consumer environment.
For those that can weather this bump though, the medium-term outlook remains positive. Real retail turnover is forecast to grow by 2.4% in 2026 and 2.2% in 2027 – healthy levels of growth compared to the past two years.
This newsletter was distributed on 4th March 2026. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Jasper Roberts (Economist, Deloitte Access Economics).
Click on the links below to read our previous Weekly Economic Briefings:
