GDP up 2.6 per cent in 2025 calendar year amid higher public spending

Treasurer Jim Chalmers has declared the latest GDP release “very encouraging” after it revealed the economy grew by 2.6 per cent in the 2025 calendar year, while leading economists have warned that the data is a case of “good news being bad news”.

Wednesday’s national accounts data showed seasonally adjusted GDP was up 0.8 per cent for the December quarter on the back of higher government spending and stronger private demand.

Meanwhile, terms of trade, or how much Australia can import for the same price, was also up 0.4 per cent while household saving to income ratio rose to 6.9 per cent from 6.1 per cent.

Mr Chalmers touted the data as showing “strong, broadbased growth and an ongoing recovery in the private sector”.

“These really encouraging numbers are a very robust foundation from which we confront intense global economic volatility, made worse by the dramatic escalation of hostilities in Iran and across the Middle East,” Mr Chalmers said in a statement.

“Growth in our economy is now much stronger and broader, and that’s very welcome.”

While he welcomed Wednesday’s numbers, he also said the country had “serious challenges” amid soaring uncertainty across the world.

“Australia is not immune from extreme global volatility, but our unique combination of economic strengths means we are well placed to manage the challenges coming at us,” Mr Chalmers said.

Despite higher than expected growth, economists have not shared Mr Chalmers’ optimism.

Deloitte Access Economics partner Stephen Smith warned it “will be a concern for the Reserve Bank” as it mulls its upcoming rates decision, despite the data being three months old.

“Today’s national accounts data is a case of when good news is actually bad news,” Mr Smith said.

“While stronger growth may seem like positive news, it will be a concern for the Reserve Bank.

“The RBA is already of the view that the economy is operating above its potential.

“It will also be alarmed by the revelation that there was no labour productivity growth recorded in the quarter.

“Unless this changes, low growth and high inflation could become entrenched as long-term features of the Australian economy.

“Combined with elevated inflation, today’s data will keep the RBA on high alert and increase the likelihood of a rate hike in May.”

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Meanwhile, BDO chief economic Anders Magnusson said the data “suggests an economy working harder rather than smarter”, adding that “since this growth was not driven productivity improvements, it may indicate continuing inflation pressure”.

“The composition of growth shifted in the December quarter,” he said.

“After driving momentum in September, private sector growth slowed, while public demand held steady.

“The result was a more even split of growth between public and private activity, rather than a clear acceleration in private‑led growth.”

He went on to say the “release includes a concerning signal about productivity”.

“GDP per hour worked was flat in the December quarter, meaning economic growth came from Australians working more hours, not from producing more with each hour worked,” he said.

“Without productivity gains, faster growth translates into inflation, rather than sustainably higher living standards.”

Both Mr Magnusson and Mr Smith cautioned the war spiralling in the Middle East would affect slow growth in Australia and abroad.