Australian economy: GDP grew 0.6 per cent in December, strongest in two years

Australia’s economy grew by 0.6 per cent in the final quarter of 2024, bringing the annual rate of growth to 1.3 per cent.

The results were stronger than expected thanks to a surprise lift in business inventory data released earlier this week.

Quarterly GDP growth of 0.6 per cent is the strongest showing in more than two years and suggests that the economy is recovering from a low point experienced in the third quarter of last year.

‘Modest growth was seen broadly across the economy this quarter. Both public and private spending contributed to the growth, supported by a rise in exports of goods and services,’ Katherine Keenan, ABS head of national accounts, said.

It means GDP per capita is now positive, up 0.1 per cent this quarter following seven consecutive quarters of falls.

Data released this week showed that public sector demand continues to be the main driver of economic activity.

Government consumption also continued to grow, up 0.7 per cent due to cost of living support, public sector wages and the expansion of health, child and aged care. It is moderating however growing at half pace of the previous two quarters.

While Federal spending is still growing strongly at 0.5 per cent, state and local government spending is growing faster at 0.8 per cent

As a percentage of GDP, the public sector is now 27.5 per cent of the economy, beating the previous record high in the third quarter of last year.

Public investment across State and Federal governments is also up on public transport, roads, water and renewable electricity infrastructure. Commonwealth projects also grew, including for telecommunications and power generation.

Private sector growth continues to be anaemic, growing at 0.3 per cent in the quarter.

“Investment in new engineering, construction of electricity generation and distribution projects, and mining investment drove the growth,’ Ms Keenan said.

Private investment in dwellings, however, fell 0.4 per cent as price and labour pressures continued to weigh on the pipeline of work, particularly for houses and alterations and additions.

Yesterday, retail sales figures showed a growth rate of 3.8 per cent annualised, and 4.7 per cent for the last six months, with tax cuts and government cost-of-living subsidies supporting household spending.

The GDP figures will be closely watched by the Reserve Bank, who reiterated this week that the decision to cut rates was hotly contested and warned the market that it was too optimistic on further rate cuts.

Speaking at a business function this morning, RBA deputy governor Andrew Hauser said the “extraordinarily strong” growth in employment was a key area of focus and the Board was struggling to determine whether such a strong labour market would be inflationary in a period of low growth.

“While the recent strength in employment growth is welcome, it’s also unusual after a period of such subdued GDP growth. The question is what it means for the margin of spare capacity in the economy, and hence for the inflation outlook,” Mr Hauser said.

Investment bank Citi said it was keeping its forecast of a rate cut in May and August unchanged but noted there could be a “delayed easing cycle of only one more rate cut in the back half of 2025”, after reading the RBA minutes.

More to come