Australia’s economy is expected to maintain modest momentum in the December quarter, with gross domestic product forecast to grow 0.4% quarter on quarter, according to the Melbourne Institute, as higher costs and weak confidence continue to weigh on activity. Year-ended growth is projected to slow to 1.9%, down from 2.1% in the September quarter, underscoring a gradual loss of pace in the post-pandemic recovery.
The September quarter outcome had already surprised on the downside, with growth of 0.4%, around 0.2 percentage points below the Institute’s final nowcast. Still, the national accounts pointed to some underlying resilience, with private demand making a broad-based contribution of 0.8 percentage points to output growth, supported by household spending and business investment.
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Net exports were a mild drag, subtracting 0.1 percentage points, while the terms of trade edged up 0.3%. A key constraint on growth came from inventories, which shaved 0.5 percentage points off GDP as demand was met through stock drawdowns rather than fresh production. The Institute said that if private demand remains firm in the December quarter without another significant inventory rundown, current growth estimates could prove conservative, though volatility in public spending and inventories continues to complicate forecasting.
Labour market conditions showed signs of cooling. The unemployment rate held steady at 4.3% in November, 0.4 percentage points higher than a year earlier, while underemployment increased and participation eased. Productivity growth remained flat, and unit labour costs rose 5.4% year on year, well above levels consistent with the Reserve Bank of Australia’s inflation target, highlighting ongoing price pressures.
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Consumer sentiment deteriorated sharply in December, with the Westpac–Melbourne Institute Consumer Sentiment Index falling 9%, although it remained slightly above year-ago levels. In contrast, household spending data suggested near-term resilience, with October spending rising 1.3% month on month and discretionary outlays rebounding strongly.
Looking ahead, the Westpac–Melbourne Institute Leading Index points to the possibility of above-trend growth over the next three to nine months, offering cautious optimism that momentum could improve beyond the current slowdown, even as policymakers remain alert to inflation risks.
