Australia’s economy grew just 0.3% in the March quarter, below expectations, as households cut back and export disruptions bit.
Australia’s economy grew 0.3% in the three months to March 2026, and 2.5% compared to the same time last year, according to seasonally adjusted figures from the ABS. The result was softer than the market had expected, with economists forecasting 0.4% quarterly growth and 2.6% through the year.
Grace Kim, ABS head of National Accounts, said the slowdown reflected a combination of factors. “Economic growth slowed in the March quarter, with modest household and public sector expenditure as well as cyclone disruptions to mining and export activities,” she said.
Households under pressure
Household spending rose 0.5% for the quarter, but the detail behind that number tells a more cautious story. Spending on electricity, gas and other fuels jumped 11.7%, driven by the end of government rebate payments rather than increased consumption. Spending on essential goods and services rose 0.8%, while discretionary spending edged up just 0.1%.
Kim pointed to the broader environment shaping consumer behaviour. “Rising interest rates and significantly higher fuel costs in the March month likely created an environment for more cautious consumer behaviour. This resulted in reduced spending across a range of household expenditure categories,” she said.
The household saving to income ratio fell to 6.2%, down from 7.0% in the December quarter, as spending in nominal terms outpaced growth in disposable income. Compensation of employees rose 1.2%, but income tax and interest payments offset much of that gain.
Trade and investment
Exports fell 1.1% in the quarter, the largest quarterly decline in two years, with coal down 6.8% and mineral ores down 1.3%. Cyclone disruptions weighed heavily on mining production, which fell 1.5%, while transport, postal and warehousing activity declined 1.3%. Overall, net trade detracted 0.8 percentage points from GDP growth.
On the investment side, private business investment rose 6.0%, driven by a 16.3% jump in machinery and equipment. Kim noted that the increase reflected the expansion of data centres in New South Wales and Victoria, which she described as the largest rise in machinery and equipment investment in 30 years. The contribution to GDP was moderated, however, because most of the equipment was imported.
What comes next
Matt Bell, Chief Economist at Oliver Hume Property Group, said the March quarter result is likely the first in a run of soft quarters as global uncertainty filters through the domestic economy. “Today’s slightly weaker than expected GDP result for the March quarter is going to be the first in a series of a few soft quarters as the global uncertainty that kicked off in late February continues to work its way through the domestic economy,” he said.
Bell said the combination of softer GDP, a rise in the unemployment rate to 2.5% in April, and consecutive lower-than-expected inflation readings will likely push markets to reduce the probability of another rate hike this year. Before the GDP release, markets were pricing in about an 80% chance of a 0.25% hike by December 2026. Bell expects that probability to drift down as more data comes in, though he noted the chance of being done with hikes remains below 50%.
For small business owners, Bell’s view is that interest rates and regulatory conditions remain the dominant forces shaping the trading environment. A stabilisation in the rate outlook, he said, would do more for business conditions over the rest of 2026 and into 2027 than most other factors.
The next read on the outlook will come when May inflation and unemployment figures are released in late June.
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