Australia's Q2 GDP growth quickens to 2-year high as consumers open wallets

The Reserve Bank of Australia has reduced rates three times since February to 3.6% as inflation cooled, providing some relief to households but frail business investment and global economic uncertainty will likely maintain pressure on the central bank to ease policy further.

"Today's data are an encouraging confirmation that heightened global uncertainty did not take a heavy toll on the economy in Q2," said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.

"Still, Q2 may prove to be a high watermark for growth in 2025. The June quarter benefitted from a rebound from a soft Q1, business and consumer confidence are still a little shaky and the labour market appears to be cooling."

The Australian Bureau of Statistics on Wednesday reported real gross domestic product (GDP) rose 0.6% in the second quarter, topping market forecasts of a 0.5% gain. That compared with a 0.3% gain in the first quarter.

Annual growth accelerated to 1.8%, from 1.4%, the fastest pace in almost two years and slightly stronger than the RBA's forecast of 1.7% by year-end.

The forecast-topping GDP figures pushed up the Australian dollar 0.1% to $0.6525, while three-year government bond futures fell 5 ticks to 96.48.

Investors pared back the chance for a rate cut in November to 92%, from almost 100% certainty before the data, while the total easing expected dropped to 45 basis points, from about 50 bps.

The central bank has so far adopted a gradual and cautious approach to policy easing, having cut in February, May and August after assessing inflation data for each quarter. The focus is now on the labour market, which has eased from full employment levels albeit at a gradual pace.

The bureau said household consumption jumped 0.9%, led by discretionary spending, adding 0.4 percentage points to GDP growth. The rate cuts so far have lowered mortgage repayments for households, with government's tax cuts boosting their cashflows.

The household savings ratio eased back to 4.2%, from 5.2%, as consumers chose to spend rather than save.

Tom Lay, head of national accounts at the bureau, said end of financial year sales and new product releases contributed to rises in spending on furnishings, household equipment, cars and recreation.

"Households took advantage of the proximity of Easter to ANZAC day to extend their holiday break, resulting in rises in discretionary services," said Lay.

Weak government, business investments

Government spending, which was the engine of activity last year, added little to growth as investment in roads, rail and health fell. Private investment was flat after a 0.6% rise in the first quarter, again barely contributing to activity.

Net exports added 0.2 percentage points to GDP.

Treasurer Jim Chalmers said business investment will be the key focus as the government has identified areas like housing, renewable energy, critical mineral projects and data centres as a priority.

"In these numbers today we acknowledge the flatness of business investment, but across almost every area, we are seeing some encouraging developments," said Chalmers, noting that dwelling investment rose for a sixth straight quarter.

The report showed GDP per capita rose 0.2% in the quarter, having slid back into negative territory the previous quarter. That is still modest considering the strong population growth.

"While today's numbers all but rule out an RBA rate cut in September, the pace of expansion suggests further loosening of monetary policy is needed," said Tony Sycamore, analyst at IG.