Australian economy grows by 1.3 per cent year-on-year, national accounts data reveals

Australia’s economy is strengthening, with a key metric rising for the first time in nearly two years, fresh figures show.

“Green shoots” have emerged in Australia’s sluggish economy with the country’s gross domestic product rising by 0.6 per cent in the December quarter, and 1.3 per cent year-on-year, according to fresh national accounts data.

For the first time in nearly two years, per-capita GDP growth also increased by 0.1 per cent quarter-on-quarter, breaking seven straight quarters of a per-capita recession.

The figures, which were released on Wednesday, were in line with forecasts from economists who were tipping optimistic growth of up to 1.4 per cent year-on-year.

Australian Bureau of Statistics head of national accounts Katherine Keenan said Wednesday’s data revealed “modest growth”.

“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,” she said.

“Economic growth picked up from the December quarter 2023 through to the December quarter 2024. GDP growth was up 1.3 per cent over this time.”

The boost to Australia’s economy was attributed to an increase in household spending (up 0.4 per cent quarter-on-quarter) following Black Friday and end-of-year sales, and growth in private investment (up 0.3 per cent) alongside government spending.

“Household discretionary spending rose as people made the most of retail sales events and increased spending on hospitality as they enjoyed music and sporting events,” Ms Keenan said.

Essential expenses like rent and health care still dominated household budgets; however, rebates helped to curb spending on electricity and gas.

While government spending moderated to 0.7 per cent quarter-on-quarter, from 1.4 per cent in December, Commonwealth expenditure increased due to funding for defence exercises, the pharmaceutical benefits scheme and aged care.

Oxford Economics head of macroeconomic forecasting Sean Langcake said Wednesday’s data revealed “green shoots” despite the Australian economy growing by just 1.3 per cent in the 2024 calendar year – the slowest pace of growth since 1992 outside of the Covid pandemic.

“Today’s GDP figures reveal that the low point of Australia’s economic cycle has now passed, with some green shoots appearing,” he said. 

He expected continued “moderate growth” of “1.6 per cent in 2025 before things pick up to 2.3 per cent and 2.7 per cent in 2026 and 2027”.

“That gradual strengthening in the pace of growth is expected as some economic headwinds fade,” Mr Langcake said. 

“Monetary policy, for example, has entered a rate-cutting cycle that will boost household spending and business investment.

“Add to that the emerging real wage gains driven by low unemployment, lower inflation and tax cuts, and the economic picture begins to look brighter still.”

Economists say there are ‘green shoots’ emerging in the Australian economy. Picture: NewsWire/ Gaye Gerard

However, Mr Langcake said the economy was “far from firing on all cylinders,” with the gains largely boosted by migration and government spending.

“Alongside migration, growth in 2024 was propped up by government spending, which is still running at a near record share of GDP,” he said. 

“Unless more is done to encourage private sector growth and investment, there’s limited upside to the economic turnaround, particularly given the global economic environment appears to be darkening. With an election imminent, this should be front of mind for all policy makers.”

BDO Economics partner Anders Magnusson agreed that more government action was needed to boost productivity and increase private sector investment.

“Government spending is at a multi-decade high, which tends to crowd out private business activity by competing for labour and capital, reducing output from the private sector,” he said.

“On the other hand, if government expenditure is made on careful investments in infrastructure, then it can support private business activity in future.

“As we approach an election year, we can expect a flurry of promises aimed at stimulating growth but requiring government expenditure. However, without a clear strategy to enhance productivity, we risk remaining in a cycle of depressed real wages and stagnant GDP per capita.”

Treasurer Jim Chalmers said the figures were encouraging. NewsWire / Martin Ollman

Giving a cautious but hopeful interpretation of Wednesday’s GDP growth, Jim Chalmers said the figures revealed a “solid rebound in growth”.

However, the Treasurer stressed that “heightened uncertainty” domestically and internationally continued to threaten the economy.

“This pick-up in quarterly growth is an early and encouraging sign that momentum is building in the economy,” he said.

“Resilient and rebounding growth is particularly important in the face of heightened uncertainty at home and abroad as we brace for Tropical Cyclone Alfred and confront rising global trade tensions.”

Ahead of the data drop at 11.30am, Finance Minister Katy Gallagher said despite subdued growth over the past year, economic conditions had improved.

“We’ve got inflation coming down, unemployment at pretty low levels, we’ve got wages going up, and we’re seeing interest rates coming down,” she said.

“So, I think all of those indicators point to a promising future and that we have turned the corner and been through the most difficult of those times.”

Originally published as Australian economy grows by 1.3 per cent year-on-year, national accounts data reveals