Key points

• GDP rose 0.2% qoq and 1.3% yoy (NAB 0.2%, Consensus 0.4%, RBA 0.4%) supported by private demand
• Today’s numbers are impacted by a raft of temporary factors but our assessment remains that growth has not picked up as quickly as expected 6 months ago
• Household consumption excluding electricity rebates rose by just 0.2% qoq and will need to strengthen further for overall growth to return to trend

Overview & implications

GDP rose 0.2% qoq (1.3% yoy). Private demand drove growth in the quarter, with household consumption rising 0.4% as well as positive contributions from business and dwelling investment. Exports were weaker in the quarter with weather disruptions to both coal and LNG exports, and public demand subtracted from growth. The savings rate rose notably, with disposable income growth boosted by insurance and government disaster payments related to the severe weather in QLD and NSW. The ABS notes the impact of weather disruptions was particularly evident in ‘mining, tourism and shipping’.

While headline growth and a number of components were impacted by a raft of temporary factors, underlying growth remains soft. Particularly household consumption growth which was boosted by the unwinding of electricity subsidies in the quarter. While we estimate only a small slowing in underlying momentum, growth has not picked up as quickly as the RBA had earlier expected. Further, while disposable income growth and the savings rate rose sharply in the quarter, this will unwind next quarter (though NSW flooding may drive ongoing impacts to the data). This suggests the backdrop for household balance sheets and incomes, while having improved, is not overly strong. Household consumption per capita declined in the quarter, with declines in 8 of the last 9 quarters.

Looking forward, we continue to expect growth below 2% over 2025, marking another year of below trend growth. That is softer than we (and the RBA) had expected 6 months ago and for growth to match the RBA’s SoMP forecasts for June 2025, Q2 GDP growth would need rise 0.7% qoq. While both public demand and exports will rebound in coming quarter, we would need to see a sustained improvement across the private sector components in order for overall GDP growth to return to trend. NAB continues to expect the RBA to ease further in July, August and November, taking the cash rate to a broadly neutral stance of 3.1%. With inflation expected to settle around the mid-point of the target band, growth picking up more slowly than expected, and downside risks to the global outlook, a restrictive policy stance is no longer appropriate, and the RBA can afford focus on both activity and the labour market as well as inflation.

For further details please see the Australian Economic Update – GDP Q1 2025