Australia’s economy expanded just 0.2% in the March 2025 quarter and 1.3% over the year, marking one of the weakest quarterly results since the 1990s recession, excluding the pandemic, according to new ABS data.
“Economic growth was soft in the March quarter,” said Katherine Keenan (pictured left), ABS head of national accounts.
“Public spending recorded the largest detraction from growth since the September quarter 2017. Extreme weather events reduced domestic final demand and exports. Weather impacts were particularly evident in mining, tourism and shipping.”
GDP per capita fell 0.2% for the quarter and is down 0.4% annually.
Westpac senior economist Pat Bustamante (pictured centre) noted the result was “a touch stronger” than expected but still signalled “underlying momentum is undoubtedly weak.”
Construction was the standout performer, rising 2.2% and preventing the economy from sliding into negative territory, according to Master Builders Australia.
“Demand for home renovations was particularly strong,” said MBA chief economist Shane Garrett (pictured right). Residential construction grew 2.6%, non-residential activity rose 2.1%, and engineering projects increased 1.5%.
“The improved performance of construction activity coincided in the same quarter as the Reserve Bank of Australia’s initial interest rate cut, giving confidence a much-needed boost,” Garrett said.
However, MBA CEO Denita Wawn warned: “We are still building homes at a far slower rate than what’s needed to hit the Accord target… Builders are doing the heavy lifting for the economy, now it’s time for the policy settings to do the same.”
Household consumption lifted 0.4%, with gains in food, rent, utilities, and recreation. However, spending growth remained below population growth, and many households chose to save rather than spend.
“The rise in household savings this quarter included higher income support from government and insurance claims linked to severe weather events in Queensland,” Keenan said. The household saving ratio climbed to 5.2%, up from 3.9% in December.
“This was driven largely by non-discretionary items such as food, rent, and energy costs… highlighting the cautious stance households are still taking,” RSM Australia economist Devika Shivadekar said.
Private investment rose 0.7%, buoyed by dwelling approvals and engineering projects in mining and energy. However, machinery and equipment investment fell.
Public investment declined 2.0%, reversing record spending levels from December. The drop was driven by completed or delayed infrastructure projects, including in transport, energy, and telecoms.
“There was a pull back in state and local government consumption as temporary cost-of-living support has been wound back,” Bustamante said.
Net trade subtracted 0.1 percentage points from growth. Exports of coal, LNG, and tourism services were hit by extreme weather and weak student inflows. Imports of capital goods also fell.
“These disruptions not only impacted household consumption and business investment but also contributed to a sharp detraction in public spending… and a hit to exports,” Shivadekar said.
Productivity remains a concern. Labour productivity fell 1% year-on-year, while nominal unit labour costs (ULCs) rose 6.1%, reflecting higher wages and weaker output.
“This leaves policymakers stuck between supporting growth and managing inflation risks,” Bustamante said.
“We still expect to see the next reduction by 25bps in August, however weak incoming data could make the July meeting one to watch,” Shivadekar said.
