News of the nation’s lagging economic growth should sound alarm bells in Canberra

Australia has hit a pothole on the road to economic recovery which demands swift action from politicians to improve productivity, writes economist Stephen Smith

Australia has hit a pothole on the road to economic recovery, with Gross Domestic Product (GDP) growth slowing to just 0.2 per cent in the March quarter, according to Australian Bureau of Statistics data released this week.

While this dip was broadly expected, given Cyclone Alfred’s disruption of economic activity across Queensland and New South Wales, the result also underscores a deeper issue.

The Australian economy has been reliant on strong government spending of late.

With that growth now fading, private sector is looking sluggish and is broadly failing to pick up the slack.

It is no secret that government spending and investment kept the Australian economy afloat in the post-pandemic period.

However, the fact that private sector spending, and particularly business investment, remains soft is a particular concern.

Investment is the most important driver of productivity growth, which is the key to sustainable economic growth that enables a continued increase in our standard of living.

Deloitte Access Economics partner Stephen Smith.

Global economic uncertainty and volatility is contributing to a hesitancy among the private sector to spend and invest. But these factors are out of our control.

We need to focus on what we can control and ensure our policy settings are finetuned for growth.

When Federal Parliament returns in late July, policymakers must be ready to move swiftly on a productivity-focused agenda that balances economic acceleration without reigniting inflation.

Further interest rate cuts from the RBA will also help, and two further cuts are expected in 2025. But the government and RBA can’t do it all alone.

As the OECD pointed out earlier in the week, business investment in Australia is far weaker than it needs to be.

Business must play its part by embracing innovation, expanding into new markets, and investing in advanced technologies and skills.

It’s time to revive Australia’s entrepreneurial spirit and focus on long-term value over short-term earnings.

Stephen Smith is Partner at Deloitte Access Economics