Australia’s economy is showing resilience, with consumer spending lifting growth and risks becoming more “two-sided.” Still, Westpac economists say the balance remains in favour of further Reserve Bank (RBA) rate cuts.
The RBA cut the cash rate by 25bps to 3.6% in August and flagged that further cuts will be needed to keep inflation within the 2-3% target range.
Westpac Group chief economist Luci Ellis (pictured left) and head of macro-forecasting Matt Hassan (pictured centre) said stronger-than-expected local data has effectively ruled out a September cut, but November remains on the table.
“Domestic data since then has been on the positive side of expectations, essentially ruling out a September move and confirming our view that the next cut in the cash rate will be in November at the earliest,” Ellis and Hassan said.
The economists added that while risks are now more “two-sided,” RBA is pursuing a cautious approach and will likely keep policy on hold until later in the year.
Offshore, markets have taken recent developments largely in stride despite political pressure on the US Federal Reserve and new US tariffs now facing a constitutional challenge.
Ellis and Hassan noted that markets remain “susceptible to a sudden repricing if they were to become spooked by some trigger event,” pointing to stretched equity valuations, narrow credit spreads, and an overvalued US dollar.
The latest national accounts showed GDP grew 0.6% in the June quarter and 1.8% over the year, supported by stronger household consumption.
“Household consumption grew an impressive 0.9%qtr – the strongest increase since the December quarter 2022,” Westpac senior economist Pat Bustamante (pictured right) said. “It’s becoming more apparent that households are increasingly spending their improving incomes, which rose 4.1%yr over the year to the June quarter – the strongest pace since 2011 outside of the COVID period.”
Bustamante said tax relief and interest rate cuts are boosting disposable incomes, while disinflation is helping protect purchasing power.
The labour market is softening, with jobs growth easing and unemployment at 4.2%, but household spending is proving more resilient than expected.
“The picture is still of a consumer recovery: real disposable incomes are benefiting as the interest rate declines from restrictive levels build on the boost from last year’s tax cuts and assisted by moderating inflation,” Ellis and Hassan said.
Westpac has revised its GDP forecasts higher, now expecting growth of 1.9% in 2025 and 2.4% in 2026. Household consumption per person is also projected to rise for the first time in three years.
For mortgage brokers, the Westpac outlook signals a market where lower interest rates and stronger household spending could support improved borrower confidence and demand. But with risks more balanced, brokers should also be prepared for uneven recovery across sectors and regions.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
