Australia’s growth is easing earlier than expected, according to analysts
Australia’s economic growth appears to be losing steam, with a new report from Westpac Economics indicating the country’s cyclical upswing has begun to mature – even before the full weight of recent interest rate increases has been felt by households and businesses.
The Westpac Nowcast Q1 2026 Second Estimate, published Friday by senior economist Pat Bustamante, projects gross domestic product growth of around 0.6% for the March quarter, lifting year-ended growth to 2.8%. The estimate is consistent with Westpac’s earlier first estimate and is based on domestic and international data released through to the March Labour Force Survey on Thursday.
The bank’s monthly activity index edged lower in March after moving sideways through January and February, signalling that the upswing which began in May 2025 has effectively run its course. The index has now retreated to levels last recorded in September 2025.
Westpac cautioned that greater-than-usual uncertainty surrounds the monthly activity estimate, noting that elevated inflationary pressures can cause nominal indicators, such as consumer spending, to appear stronger than inflation-adjusted figures would suggest.
Key economic indicators, including labour market conditions, consumer spending, and credit growth, all lost momentum and shifted to neutral in March after a strong close to 2025, according to the report’s activity heatmap.
On confidence, the report noted that sharp recent falls in both consumer and business sentiment have largely been set aside in the bank’s modelling framework. Westpac said the confidence drops appeared to stem from the ongoing Middle East conflict rather than from domestic economic conditions, classifying the declines as large idiosyncratic shocks for now. That position could change, the report said, if the weakness proves sustained or if higher-frequency data such as banking transaction volumes begin to move in the same direction.
Looking ahead, Westpac’s framework projects growth will ease to 0.5% in the June quarter before recovering to 0.6% in the September quarter of 2026. The bank cautioned those projections carry heightened uncertainty and do not account for the broader potential impact of the Middle East conflict.
“A prolonged Middle East conflict raises the risk that weak confidence and supply chain disruptions reinforce each other, posing a more material downside risk over coming quarters,” the report stated.
The next Westpac Now update is scheduled for 22 May 2026.
