Sluggish demand and weather disruptions limit early 2025 growth
Economic growth in Australia is expected to have nearly stalled in the first quarter of 2025, with Westpac forecasting a slim 0.1% rise for the quarter and 1.2% year-on-year growth – matching the weakest annual rate since 1992, excluding pandemic-related periods.
The bank’s latest forecast suggests domestic demand had minimal momentum, with combined household, business and government spending increasing by just 0.1%. This represents a further slowdown from the bank’s previous projection of 0.3% quarterly growth.
Private sales volumes also dipped slightly by 0.1%, while sales excluding the mining and finance sectors recorded modest growth of 0.2%.
Public sector activity provided a notable drag. Westpac noted that new public demand declined by 0.4%, subtracting 0.1 percentage points from GDP growth – the largest detraction in almost 10 years. The fall was primarily driven by a 2.3% drop in public investment as major infrastructure works began to wind down. Consumption by state and local governments also declined as temporary cost-of-living support expired.
“We have downgraded our GDP forecast to 0.1%qtr and 1.2%yr in Q1 2025 following the latest batch of indicators. Public demand, net exports and investment in intangibles all disappointed,” Westpac stated.
Business investment also softened, led by a 2.4% decrease in mining exploration expenditure. Weather disruptions across Queensland and New South Wales impacted the mining sector, with coal exports falling significantly during the period. The decline was partially offset by a boost in gold exports, which were brought forward during the quarter. Despite these trade distortions, net exports are expected to subtract 0.1 percentage points from GDP growth.
On inventories, there was a positive surprise. Total inventories are forecast to add 0.1 percentage points to growth, mainly due to a 1.1% increase in mining stockpiles. This build-up was unexpected, as strong gold exports were initially thought to draw down inventory. Non-mining inventories rose 0.3%, while public inventories declined.
Sales volumes across the economy also fell 0.1% during the quarter. However, annual growth edged higher to 0.8%, up from 0.3% the previous quarter. Mining sales volumes slumped 3.4%, while other sectors showed a combined increase of 0.4%.
External trade was affected by a range of one-off factors and data revisions. The current account deficit reached $14.7 billion in the quarter. While this was in line with forecasts, a $3.8 billion upward revision to the previous quarter’s deficit reshaped the overall picture. Lower returns on foreign investment and weaker coal prices contributed to a narrower primary income deficit of $19.4 billion.
The trade surplus held steady at $5.4 billion. Real goods exports declined 0.3%, largely due to falling coal shipments. Excluding coal, goods exports would have increased by 1.4%. Imports also dropped by 0.3%, mostly due to lower capital goods inflows.
Services exports declined 3%, primarily due to reduced spending by international students and tourists. Imports of services dipped 0.8%, marking a second consecutive quarter of decline in overseas holiday spending by Australians.
Profitability was mixed. Overall profits declined 0.5% in Q1, below market expectations. Mining profits dropped sharply by 6%, reflecting both weaker output and softer prices. In contrast, non-mining sectors reported a 3.1% gain. After adjusting for inventory valuation effects, Westpac estimated that gross operating surplus in the national accounts fell closer to 0.9%.
Government borrowing also slowed. Total borrowings for Q1 were $17.4 billion – about $800 per working-age individual – down from $27 billion and $38 billion in the two prior quarters.
Westpac cautioned that while some of the weakness in Q1 can be linked to temporary weather events, broader signs point to ongoing sluggishness. “While some of the weakness reflects bigger than expected impacts from weather-related disruptions, it is undoubtedly the case that growth remains sluggish,” the bank said.
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