FinX Pulse - 5th June 2025
- Brett Careedy
- Jun 5
- 3 min read
Australian Q1 real GDP increased by +0.2%, according to the ABS, down from +0.6% last quarter. Economists had forecast a +0.4% qoq increase.
The annual increase in real GDP was +1.3%, the same as Q4 2024 but below the +1.5% consensus forecast.
GDP per capita fell by -0.2%, the tenth reduction in living standards in the last eleven quarters. This clearly outlines that the Australian economy is in the midst of a 'per-capita' recession.
GDP rose by +1.4% in nominal terms and by +3.7% yoy.
Katherine Keenan, ABS head of national accounts, said: "Economic growth was soft in the March quarter. Public spending recorded the largest detraction from growth since the September quarter 2017. Extreme weather events reduced domestic final demand and exports. Weather impacts were particularly evident in mining, tourism and shipping".
Household spending was up +0.4% in the March quarter following a revised +0.7% per cent rise in the December quarter. Essential spending rose 0.4%, led by a strong rise in electricity, gas, and other fuel (+10.2%) from increased demand for electricity usage due to warmer-than-average summer conditions as well as reduced electricity bill relief payments to households.
There was no growth in Government Consumption after nine consecutive quarters of growth. State and local government expenditure (-0.3%) fell with reduced electricity rebate payments to households across most jurisdictions. National government expenditure (+0.3%) continued to moderate as spending on social benefits programs such as the Medicare Benefits Scheme (MBS) and the National Disability Insurance Scheme (NDIS) fell, while defence spending continued to grow steadily.
Net trade detracted -0.1%t from GDP growth as a fall in exports (-0.8%) was only partly offset by a fall in imports (-0.4%). Exports of services (-3.0%) led this fall, with a lower-than-average increase in international student numbers and reduced spending per student leading to a decline in travel services exports. Exports of goods (-0.3%) fell led by coal and liquefied natural gas (LNG) exports as production and shipments faced disruptions from bad weather conditions.
Company operating profit fell -0.5%, down from +6.0% last quarter.
Compensation of employees (COE) increased +1.5%. Private COE (+1.7%) led the rise, with increases in bonuses, headcounts and wages seen across industries including Health Care and Social Assistance, Professional, Scientific and Technical Services, and Financial and Insurance Services. Public COE (+1.0%) further contributed to the rise as state and local government implemented pay rises for police, healthcare workers and teachers.
Household saving-to-income ratio rose to 5.2% from 3.9%, as growth in gross disposable income outpaced growth in nominal household consumption.
Earlier this week the Fair Work Commission announced a +3.5% increase to the national minimum wage from 1st July 2025, down from +3.75% last year. The benchmark real value of wages has fallen by -4.5% since July 2021.
Fin-X Wealth View
The Q1 national accounts showed that the Australian economy is still undergoing a post-pandemic and inflation rebalancing.
Despite the undershooting of the headline figures and further decline in GDP-per-capita, there were some pleasing developments. Households are gradually regaining purchasing power and the higher savings rate indicates stronger wealth creation and future resilience. This week's wage awards will likely continue the trend.
On the other hand, higher wages reduced company profits across the economy. At the same time, the higher wages mean that most of the credit growth is going into the housing market, which adds to possible future problems unless construction can be increased.
The results have prompted very little movement in the bond market and the market pricing still has the RBA on track to cut three more times this year, barring any nasty surprises from US trade policy which could bring more cuts.
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