Economic outlook remains soft

Australia's economy rose by 0.2 percent in the March quarter and 1.3 percent over the year, falling short of market expectations. The contribution of public spending to growth was at its lowest since Q3 2017. Extreme weather events disrupted domestic final demand and exports, with notable impacts on mining, tourism and shipping. Public investment declined for the first time in three quarters, reflecting the completion of major energy, telecommunications, rail, and road projects, alongside delays in new developments.

Household spending rose by 0.4 percent in the March quarter, although growth remained relatively modest across most categories following elevated spending during the December quarter retail period. Expenditures on electricity, gas, and other fuels increased, influenced by warmer-than-average weather and reduced electricity rebates available during the quarter.

Investment in housing, including new dwellings and renovations, increased in line with recent approvals. Non-dwelling construction also expanded, driven by investment in mining and manufacturing projects, with continued investment in electricity generation and distribution.

The household savings ratio has increased, indicating a more cautious approach to consumer spending. With inflation appearing stable for now, discussions around potential interest rate adjustments continue. A combination of rising savings, subdued consumption, and moderate private investment suggests the current cash rate remains restrictive.

Although the RBA held rates steady in its July meeting, the decision was more about timing than direction. These underlying conditions continue to support the case for further rate cuts in the months ahead. Persistent uncertainty is likely to weigh on investment activity and dampen near-term growth, while ongoing volatility from policy shifts and reversals risks further weakening business confidence and demand.