Australia’s economy grew just 0.2% in the June quarter and 1% over the year, reflecting sluggish conditions, according to Westpac.
According to Westpac’s Matthew Hassan and Pat Bustamante (pictured above, left to right), the biggest surprise was the sharp drop in consumer spending, which fell 0.2% – the largest quarterly decline since the Global Financial Crisis, excluding the COVID period.
“This protracted period of weakness in consumer spending is clearly weighing on businesses,” Hassan and Bustamante said, with annual growth in spending slowing to just 0.5%.
While private demand remains fragile, public sector spending continued to expand, reaching a record 27.3% share of the economy. Public consumption, driven by government programs like the NDIS and higher public sector wages, grew by 1.4% in the quarter.
In contrast, business investment grew by a modest 0.1%, highlighting the disparity between private and public sector contributions to growth.
Westpac has downgraded its growth forecasts, pointing to continued pressure on household incomes from high inflation, rising interest rates, and increasing taxes.
“The ‘triple squeeze’ on household incomes from high inflation, rising interest rates and a higher tax take has seen real disposable income per capita fall a whopping 10% from its 2021 peak,” Hassan and Bustamante said.
They now expect a slower recovery in private demand, revising consumption and investment forecasts down for 2025 and 2026.
Despite the struggles in the private sector, public demand is expected to offset some of the weakness in the near term.
Westpac has adjusted its forecasts, raising the expected fiscal impact on GDP in 2024 and 2025 but lowering growth expectations for 2026 as public spending levels off. This reflects a “much shakier ‘handover’ of growth” as private sector activity picks up more slowly than anticipated.
Economic performance varies widely across states.
Western Australia continues to lead with strong growth driven by public investment and a surge in dwelling construction.
Queensland and South Australia also maintain relatively firm conditions due to robust public demand.
However, New South Wales and Victoria have been hit hardest by the consumer squeeze, with rising unemployment rates and a pronounced slowdown in private demand.
Despite divergent economic conditions, inflation remains elevated across all states.
Inflation rates have shown minor differences between states, with notable exceptions in housing costs, where prices have surged in high-growth areas like Perth.
“If demand is more resilient in the mining states and we’re at ‘capacity,’ then we should expect to see inflation remain elevated in these states,” Bustamante said.
Looking ahead, economic growth is expected to remain uneven, with strong public demand masking underlying weaknesses in the private sector.
“By end-2026 Australia will have seen five years of below-trend growth with GDP essentially flat in per capita terms,” Hassan and Bustamante said.
Addressing these disparities will be crucial to achieving balanced and sustained economic recovery across the country, Westpac reported.
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