Australia’s economy recorded its weakest annual growth rate in decades (excluding the pandemic) in the September quarter, with annual growth slowing to 0.8 percent from 1.0 percent in the previous quarter. Quarterly growth rose marginally to 0.3 percent, up from 0.2 percent in the preceding three quarters, though it remained below market expectations.

Public demand was the primary driver of quarterly growth, rising by 6.3 percent as construction on hospitals, roads and utilities infrastructure gained momentum. In contrast, household and business consumption remained subdued despite solid increases in household incomes and the introduction of tax cuts on 1 July 2024. A notable rise in the household savings rate suggests that surplus income is being saved rather than spent.

Private investment saw a modest increase of 0.1 percent, driven by a slight rebound in new home commencements within the dwelling construction sector. However, non-dwelling construction declined by 2.7 percent, partially offsetting these gains, though investment in warehouses and data centres remained strong.

Annual inflation eased further in Q4, dropping to 2.4 percent in December, and now comfortably within the RBA’s target range of 2.0–3.0 percent. However, this slowdown continues to be largely driven by government subsidies, particularly the Federal Government’s electricity rebates, significantly reducing electricity prices. Excluding the impact of these subsidies, underlying price pressures remain elevated.

Inflation in the services sector remains persistent, sitting at 4.6 percent in September and 4.3 percent in December 2024. Higher rents, insurance premiums and childcare costs remain the key drivers of this stronger growth.

The labour market continues to defy the broader slowdown underway across the economy, with the unemployment rate dropping to 3.9 percent in November 2024. Employment increased by 0.2 percent (35,600) during this period, keeping pace with population growth. Strong public sector support is offsetting weakness in the private sector, keeping the labour market exceptionally tight. The labour market’s performance is being closely monitored by the RBA, and we expect that this recent result will likely further delay any rate cuts until the second half of 2025.