Fin-X Rapid Response - 2nd September 2026
Australian GDP growth beat estimates but remained relatively subdued in Q2. However, more timely data from the start of Q3 suggests that growth is accelerating and broadening, with near-term rate risks still skewed to the upside.
Australian gross domestic product (GDP) rose by 0.4% (seasonally adjusted) in the June quarter 2026, according to the Australian Bureau of Statistics (ABS) today. Economists had been expecting +0.3%, the same as in the first quarter.
Grace Kim, ABS head of National Accounts, said: "Economic growth remained subdued in the June quarter as households continued to behave cautiously. While increased spending and business investment occurred in pockets of the economy, [lower] imports supported much of the growth, moderating its contribution to overall GDP growth".
Annual real GDP growth decelerated from +2.5% in Q1 to +2.1% last quarter, above the consensus estimate of a +1.8% increase.
Nominal GDP increased by +0.8% qoq and +5.3% annually, with an implicit price deflator of +3.2% yoy.
GDP per capita rose by +0.7% yoy, while productivity declined by -0.2% yoy.
Contributions to quarterly real GDP growth:
Domestic final demand contributed +0.3% to growth, with private demand adding +0.2% (household consumption-led). Public demand added +0.1%
Net trade added +0.1%, its first positive contribution since the December quarter 2023.
Inventories detracted -0.1%.
Gross value added (GVA) grew by +0.5%, driven by business services with ongoing demand for engineering design, management consultancy and digital AI services. Financial and Insurance Services further contributed to the rise, driven by increased demand for banking, mortgage, and stock brokerage services.
Private non-financial corporations' Gross Operating Surplus (GOS) rose by 2.5%, led by Mining, with increased sales and higher prices, particularly for coal, crude oil, and lithium. Non-mining GOS rose, driven by Professional, Scientific and Technical Services reflecting ongoing demand for computer and engineering design services. Construction GOS rose with increased work done on high-value projects in heavy and civil engineering.
Higher input costs predominantly impacted energy- and fuel-intensive industries, including Construction, Mining, Manufacturing and Transport, Postal and Warehousing. Construction continued to experience price rises due to ongoing competition for limited resources in both labour and materials.
The terms of trade declined by -1.6% during Q2. The fall in the terms of trade was driven by rising import prices for intermediate goods, heavily impacted by the Middle East conflict, which led to higher prices for fuels, fertilisers and plastics. Prices for air and sea freight were also impacted.
Private business investment declined by -0.5%. Investment in machinery and equipment for data centre fit outs fell following a substantial rise in the March quarter. Investment in data centres remains at elevated levels. Increased purchases of planes and industrial transport equipment partly offset the quarterly fall. However, private business investment was still +10.4% higher than in Q2 2025.
Compensation of employees (COE) increased +1.5% as labour market conditions remained tight.
The household saving ratio increased slightly from 6.4% in Q1 to 6.5%.
Household consumption grew +0.4% and contributed +0.2 to GDP growth.
Discretionary spending (+1.4%) led the rise. However, nearly half of this increase was due to higher growth in vehicle purchases. There were record sales of electric and hybrid vehicles as more households sought to lower ongoing vehicle operating costs. The remaining discretionary categories saw subdued growth, where rising cost-of-living pressures aligned with restrained spending. Domestic and international tourism was particularly weak, as the conflict in the Middle East affected travel to the Northern Hemisphere.
The ISM manufacturing survey (54.6) was slightly weaker than anticipated overnight but remained in expansionary territory. The RBNZ also rates by a quarter point to 2.75% today, as widely expected
S&P/ASX200 8,979 -0.97%, AUDUSD 0.7142 (unch), Aus 2yr 4.82% +8bps, Aus 10yr 5.22% +4bps
Fin-X View
Q2 activity was measured against a lively backdrop. The US-Israel-Iran conflict began just before the start of the quarter, the RBA raised interest rates at a third consecutive meeting in early May, and the Treasurer handed down the budget soon after on the 12th May. The short-term impacts of the war seem to have had a much bigger impact on spending than rates and the budget.
Real GDP growth ran at an annualised rate of just +1.2% in the first half of 2026. The relatively subdued rate arguably undermines the RBA's case that the economy was operating above capacity. Households remained cautious as the headline contribution was pushed up by electric vehicle purchases, and the positive increase from net exports was below the average for 2025. Even business investment fell back.
Nevertheless, private-sector business is still driving the economy. Yesterday's financial aggregates showed business credit growth rising at +10.6% yoy in July, compared to +7.4% for personal credit and +4.7% for housing.
As we noted last week, the relatively high July wage awards have boosted household spending such that today's GDP figures are much less relevant to the outlook. Higher wages open the door to wider participation and higher multiplier effects.
We think there is a danger of reading too much into the subdued momentum in today's Q2 result. Growth can broaden, and near-term cash-rate risks remain skewed to the upside, especially given that productivity gains remain elusive.
For contrary evidence that the economy is stuck in low growth, we'll be watching for signs of an easing labour market and dissipating household spending.
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