Australia’s economy expanded at its quickest annual pace in two years during the September quarter, driven by increased business activity, higher public and private spending, and resilient consumer demand.
The Australian Bureau of Statistics indicated real GDP rose by 2.1% year-on-year in the third quarter, the strongest performance since mid-2023 and surpassing the Reserve Bank of Australia’s trend growth forecast of 2%. On a quarterly basis, GDP increased by 0.4%, falling short of the 0.7% anticipated by analysts and down from the upwardly revised 0.7% recorded in the previous quarter.
The report also showed that inflation indicators remain elevated, echoing remarks from the central bank governor, who recently suggested that economic growth may already be at its maximum sustainable pace.
Harry Murphy Cruise, head of economic research at Oxford Economics Australia, noted that the economy’s robust condition poses challenges for the Reserve Bank of Australia. With inflation climbing and domestic demand strengthening, the likelihood of near-term rate cuts has diminished, leaving open the possibility of a rate hike as soon as next week.
The RBA board is scheduled to meet on December 9, with expectations firmly anchored that rates will be held at 3.60%. Swap markets suggest the RBA will maintain current rates until late next year, but have fully priced in an interest rate increase by the end of 2026.
The moderated quarter-on-quarter growth primarily reflected a significant reduction in inventories, which subtracted 0.5 percentage points from GDP. Nonetheless, domestic final demand saw a notable upswing, contributing 1.1 percentage points to quarterly growth and highlighting the underlying strength in the economy.
