GDP numbers hint at private sector recovery but outlook is unclear
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More news: The latest GDP data shows the economy was largely supported by government spending activities over 2024, but the final quarter of the year included some green shoots of activity in the private sector.
Analysts are now questioning whether this is a blip, or the start of a sustained recovery as business takes over from the government in driving economic growth.
Westpac economists said the expected recovery in private demand “is underway but unfolding slowly”, while the pick up in household consumption is evident but the growth remains weak.
“While there will be more support from lower interest rates in 2025, the pace of easing is likely to be slow and the response from households is expected to remain fairly muted,” the bank’s economists said in a note.
“A more unsettled global backdrop and upcoming Federal election will also be adding to uncertainty. and global policy uncertainty, led by trade disputes, will be additional factors charting the direction for economic activity going forward.”
KPMG chief economist Brendan Rynne said the economy is “now on an upswing” following its low in mid-2024. He said the focus would now be on whether this growth is sustainable, and whether the private sector can take the lead from the public sector in driving this growth.
Moody’s Analytics head of Australia economics Harry Murphy Cruise said the economy's revival was broad-based. Household spending, public sector demand, trade and business investment were all increasing.
“Businesses are ... expected to ramp up investment by year's end, helped along by lower borrowing and building costs and a push from government infrastructure projects,” he said.
“In turn, the economy is on track to expand 2% this year, doubling last year's 1% jump. As momentum builds and rates fall further, the economy will grow 2.6% in 2026.”
ANZ senior economist Adelaide Timbrell said in an analysis that the data shows the “rotation into private sector growth” is now under way and they expect to see this growth continue through 2025.
But business groups are warning that private sector weakness “has continued”.
"Unfortunately, there is little to suggest that the poor business conditions facing many industries over the last year have turned a corner. Most indicators of private sector activity remain weak, and the economy's dependence on government spending has continued,” said Ai Group CEO Innes Willox in a media release.
"Volatility for business is only increasing, hampering hopes for a long run recovery," Willox said.
His concerns are echoed by AMP economist My Bui, who said the private sector picture is “mixed” and growing at a subdued rate.
Residential construction contracted 0.4% over the December quarter, but private business investment increased 0.7%.
And the public sector continued to be the biggest contributor to GDP growth, Bui said, though it slowed compared to previous quarters.
“While the growth rate is still way below the long-term trend, it marks a turning point for the economy as this is the first annual change uptick in more than two years,” she said.
Economy grew 0.6% in December quarter
The news: The Australian economy grew 0.6% in the December quarter and 1.3% over the year to December 2024, with new data from the Australian Bureau of Statistics showing a pickup in GDP growth after a series of weak quarters. The result was slightly stronger than market expectations.
The government says this is evidence the “worst is behind” the nation.
The numbers: The GDP per capita recession ended over the quarter, with a 0.1% increase after seven consecutive quarters of decline.
This marks the 13th consecutive quarter of growth following the pandemic slump and signals an uptick in momentum.
Household spending rose 0.4% following a flat September quarter, while the household savings ratio increased to 3.8%, up from 3.6% in the previous quarter, as gross disposable income grew.
Government spending moderated to 0.7%, private investment rose 0.3% and public investment increased 1.8%.
Nominal GDP increased 1.6% over the quarter.
The context: The government is expected to call an election within days, making this one of the most critical National Accounts releases of the Albanese government’s term.
Treasurer Jim Chalmers has shifted his language over the past 12 months to focus on economic growth and productivity, alongside bringing inflation back within target. Government spending has largely driven economic activity in recent quarters.
What they said: "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," said Australian Bureau of Statistics head of national accounts Katherine Keenan.
Chalmers called the figures a “solid rebound in growth” and “evidence our economy has turned a corner".
“This pickup in quarterly growth is an early and encouraging sign that momentum is building in the economy,” he said in a statement. “The figures show the beginnings of a private sector-led recovery and broader-based growth, with substantial contributions from consumption and new business investment.”
He added that it’s “looking more and more like the soft landing we have been planning and preparing for” and that there are “good reasons to be more optimistic about 2025".
“We are confident that the worst is behind us but we’re not complacent because people are still under pressure and global conditions are uncertain,” he said.
The sources: Australian Bureau of Statistics media release, Treasurer Jim Chalmers media release
