Extreme weather and ebbing government support dragged on the economy in early 2025, with growth of just 0.2% in the first three months to March compared with 0.6% in the previous quarter.
The disappointing result left annual real GDP growth at 1.3%, as the end of state energy subsidies and a slowdown in public infrastructure work was not offset by a hoped-for lift in business investment.
Cyclone Alfred, the first cyclone to hit south-east Queensland in 50 years, and the associated flooding, weighed on economic activity, the Australian Bureau of Statistics said.
The new figures also showed economic growth was once again falling behind population growth, pointing to a return to a fall in living standards that has bedevilled the country in recent years.
GDP per person fell 0.2% in the three months to March, after a short-lived 0.1% rise in the December quarter, the figures showed.
After propping up the economy over the past two years, public spending recorded the largest drag on growth since the September quarter of 2017, the ABS said.
Treasury has estimated that natural disasters through the first half of 2025 would deliver a $2.2bn blow to the economy, concentrated in the first quarter of the year.
Despite the grim economic update, the treasurer, Jim Chalmers, struck an upbeat tone, saying he remained “quite optimistic about the future of our economy”.
“With all of the uncertainty in the world, any growth is a decent outcome,” Chalmers said, adding that the expected boost from the two interest rate cuts in February and May were yet to be reflected in the data.
“The Australian economy remains one of the strongest in the world,” Chalmers said.
“There are some temporary factors in this quarterly outcome. There’s natural disasters in here, not just [Cyclone] Alfred, but the flooding in Townsville and Cairns and surrounding communities earlier in the year.
“The fall in public demand [is] because some of the big state projects came off. So we shouldn’t over interpret that March data. But growth is softer than we would like it to be, and I’m confident that growth will accelerate in our economy.”
The weaker than expected growth figures increased the chance of another interest rate cut at the next Reserve Bank monetary policy board meeting on 8 July, from 60% to 80%, according to financial markets.
EY’s chief economist, Cherelle Murphy, said there was “nothing to be happy about” in the latest national accounts.
“Some of the weakness can be blamed on temporary weather events interrupting export growth and hurting tourism and localised spending, but more worrying is the malaise that has set in across the business sector and amongst households,” Murphy said.
“Productivity growth was flat in the quarter and down over the year, with no evidence that Australia is making any progress in shifting the problem, which worsened in the immediate aftermath of the pandemic.
The figures also showed that while Australians were forced to pay more for essentials – not least, higher power bills as state subsidies rolled off amid a hot end to the summer – they were keener to save than spend what was leftover, despite incomes rising.
This was reflected in the household savings rate jumping from 3.9% in December to 5.2% in March, its highest in two-and-a-half years – and a sign of growing consumer caution that would drag on growth if it continued through 2025.
NAB’s head of Australian economics, Gareth Spence, said the “soggy” start was likely to extend to another year of below trend growth of under 2%, and said the RBA would cut rates in July, August and November.
