Australia GDP grows more than expected in Q2 on private, government spending boost

Updates at 23:00 ET (04:00 GMT) with analyst comments, context 

Investing.com-- Australia’s economy grew slightly more than expected in the second quarter of 2025, as strong private and government spending helped shore up activity and make up for a smaller contribution from mining exports.  

Gross domestic product grew 0.6% quarter-on-quarter in the three months to June 30, data from the Australian Bureau of Statistics showed on Wednesday. The print was above expectations of 0.5% and picked up  from the 0.2% seen in the prior quarter.

Year-on-year, GDP grew 1.8% in Q2 against expectations of 1.6% and growth of 1.3% in the prior quarter. 

Sluggish domestic spending and lower economic contribution from commodity exports were the two biggest weights on GDP, Wednesday’s data showed. But the overall print marked a strong rebound from sluggish growth in the first quarter, where adverse weather conditions had battered growth. 

Household spending and discretionary spending both increased during the quarter, with end of the financial year sales and promotions boosting spending on consumer goods and recreation. 

Government spending also contributed to GDP, especially amid a slew of social benefits and subsidies for households. Defense spending also rose.

But public investment fell during the quarter and was the biggest detractor from growth, ABS data showed. Government spending on public infrastructure dwindled, while private investment also remained languid amid sustained caution over Australian interest rates.

Net trade contributed marginally to GDP, with exports, especially those of commodities, adding 0.1 percentage points to GDP. 

Wednesday’s data reflects sustained resilience in the Australian economy despite growing headwinds from weak overseas commodity demand and U.S.-related trade disruptions.

Strong growth could diminish RBA easing plans

Strength in the economy, however, could lessen the urgency for more interest rate cuts by the Reserve Bank of Australia, especially if robust private spending continues to underpin inflation in the coming months. 

Capital Economics analysts warned that strength in the Australian economy, especially due to strong private spending, could underpin inflation and deter the RBA from cutting interest rates as sharply as markets were pricing in. 

"Given that firm pickup in activity comes at a time when the labour market remains tight and price pressures are showing tentative signs of stickiness, there is a growing risk to our below consensus terminal rate forecast of 2.85," Capital Economics analysts wrote in a note. 

The RBA cut rates thrice this year by a cumulative 75 basis points, but had flagged caution over further easing due to some risks of sticky inflation and U.S. tariff-related headwinds. 

Westpac analysts said a key point of uncertainty with Wednesday’s data was whether the strong pick-up in consumption will continue going ahead. They warned that this economic boost could fade in the current quarter. 

They also noted that the Australian economy "slowed a touch" in the first six months of 2025, although Wednesday’s data still painted a positive overall picture.