Economists warn economic growth at its limit, yet to see businesses take the reins
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More news: Economists are warning the shift away from the public sector has not materialised and GDP growth is as good as it gets without significant change.
IFM chief economist Alex Joiner described the results as a “modest acceleration of growth” helped by upward revisions to previous quarters.
On the Reserve Bank’s forecasts, he notes this is “as good as economic growth will get for the forseeable future”.
“The positive from these national accounts was the broadening out of private sector demand,” Joiner said in a note.
“Yet despite capex posting the strongest contribution since Q1 2021 it disappointed more bullish expectations suggested by the partial data.”
There was a clear pullback in households’ discretionary spending since the second quarter and a rising savings ratio.
“However, despite solid private demand the rotation away from the public sector has not occurred and we risk having an economy that is pushing up against its potential rates of growth — an uncomfortable development given it comes at a time when inflation has accelerated,” Joiner warned.
“Improvements in productivity growth remain modest and a re-acceleration of population growth still suggests that our economy gets bigger more quickly than it gets better.”
He said the RBA is likely to be “on hold for some time to come”.
Treasurer Jim Chalmers said in a statement that the national accounts show an “uptick in annual economic growth and a stronger and broader private sector recovery”.
“Growth in the private sector is picking up pace, powered by the strongest growth in private investment in almost five years,” he said, calling the strong growth in business investment and homes the “biggest story” in the national accounts.
“Growth and private sector activity are picking up, unemployment is low, participation is high, more people are in jobs and real wages are growing,” he said.
“This is the only quarter on record where the economy has had annual growth above 2%, the unemployment rate had a four in front of it and participation was more than two thirds of the working age population.”
But Oxford Economics Australia head of economic research Harry Murphy Cruise said business investment was the “big winner” of the quarter, soaring after two sluggish years.
He said the economy “is in good shape”.
“Slightly too good, in fact, for the RBA. With inflation rising and domestic momentum building, the central bank has its work cut out for it,” he said.
“Rate cuts are off the table for some time, and a hike next week to nip inflation in the bud can't be ruled out."
Economy grew 0.4% in September quarter
The news: The Australian economy grew 0.4% in the September quarter and 2.1% over the year, below market expectations of 0.7% over the quarter and 2.2% for the year.
This was below an upwardly revised 0.7% in the June quarter and 2% over the year.
The numbers: GDP per capita was flat over the quarter, remaining in-line with population growth, but up 0.4% over the year.
Private investment contributed 0.5 percentage points to growth over the quarter, driven by machinery and equipment investment, housing investment contributed 0.2 percentage points and net trade detracted 0.1 percentage points.
Mining profits increased 1.2% but production fell and firms ran down inventories to meet export demand, detracting 0.5 percentage points from GDP growth.
The household saving ratio lifted to 6.4%, from 6%.
The context: Economists have been raising concerns that if the economy is running hotter than anticipated, it could have implications for inflation and the Reserve Bank's interest rate decisions with some concerned about stagflation and others wanting to see more reform to drive productivity. The RBA monetary policy board meets next week for its final rate decision of 2025.
Governor Michele Bullock told Senate Estimates this morning that persistent inflation would have implications for the future of monetary policy following recent high inflation figures. She said the board is currently trying "to determine the extent to which it’s temporary, or the extent to which it’s giving us a signal that there’s some more permanent inflation pressures in the economy".
What they said: "Economic growth was steady in the September quarter 2025. The rise this quarter matches the average quarterly growth since the end of the COVID‑19 pandemic," ABS head of national accounts Grace Kim said.
The source: Australian Bureau of Statistics
