Australia’s 4th Quarter GDP Growth in line with Expectations
Australia’s economy finished 2025 on a strong footing, with GDP rising 0.8% in the December quarter, bringing annual growth to 2.6%—the strongest year-ended performance in several years. While the quarterly figure met market expectations, the underlying composition tells a more nuanced story. Household consumption came in softer than anticipated (0.3% q/q versus a 1.0% forecast), but this was offset by a solid rise in inventories along with steady public and private sector spending. As a result, domestic demand reached its strongest annual pace since mid-2018, excluding the unusual distortions seen during the pandemic.
Broad-Based Demand
The significance of the result lies not only in the pace of expansion but also in its broad participation across the economy. As shown in the chart tracking GDP contributions, both private and public demand have consistently added to growth since mid-2024, dispelling earlier expectations that economic momentum would shift solely from public to private spending. Instead, both sectors are contributing simultaneously.
Private demand increased 0.4% quarter-on-quarter and 3.2% year-on-year, supported by improving real incomes, which rose 1.0% in the quarter and 3.7% annually. These gains have helped sustain household spending. Business investment also advanced across most asset categories, with new building construction rising 8.9% over the year. Housing construction added 5.5% annually, supported by a solid pipeline of projects.
Supply-Side Support
On the supply side, the economy also delivered encouraging signals. Labour productivity increased by 1.0% annually, while market-sector productivity (excluding mining) rose around 1.1%. This improvement has helped ease cost pressures, with unit labour cost growth slowing to 3.3% per year, the slowest pace since before the pandemic and consistent with gradually moderating labour market conditions.
Industry Growth Broadens
Industry-level data reinforces the breadth of the expansion. Seventeen of nineteen industries recorded growth during the December quarter. Mining led with 3.7% annual growth, recovering from earlier weather-related and maintenance disruptions. Information Media and Telecommunications expanded 6.2% year-on-year, while Financial and Insurance Services increased 4.8%, supported by stronger activity in property and equity markets. Even typically slower-growing sectors such as Agriculture and Health Care reported steady gains.
Outlook
With domestic demand growing at 2.9% annually, above the Reserve Bank of Australia’s estimated potential growth rate of around 2.25%, and productivity offering a supportive backdrop, the economic outlook heading into 2026 appears resilient. The primary risk remains a potential tightening in the labour market, which could reignite wage pressures and push costs higher. For now, however, the data point to an economy that is not only recovering but expanding across a wider range of sectors.
