Soft GDP figures reinforce case for further rate cuts

The release of the Q1 National Accounts yesterday revealed that Australia’s GDP grew just 0.2 per cent in the March quarter, a slower pace than the 0.6 per cent recorded in Q4 2024 and below consensus estimates.

While this was a disappointing result, several one-off factors weighed on growth in the quarter according to Stephen Wu, Senior Economist at CBA.

“It’s certainly a soft start to the year,” Mr Wu said. “But there were temporary factors at play - natural disasters and extreme weather events, including cyclones in Queensland and WA, affected both production output and demand over the first three months of the year.”

Still, underlying momentum remains sluggish. “GDP growth in per person terms went backwards, and household spending also declined in per capita terms,” Mr Wu added. “This suggests further rate cuts will be required to prevent the economy from stalling.” 

Key takeaways and forecasts from yesterday’s report: 

• Our view is the central bank’s estimates of a 0.7 per cent lift in GDP in the second quarter is too high, particularly given global uncertainty.
• The key to recovery will be household behaviour, as consumers switch from saving and paying down debt to lifting consumption.
• The RBA will want to wait for the June quarter CPI numbers before they deliver further rate relief at their August board meeting.
• We stick with our base case for another 25 basis point cut to be delivered in August, however July remains a live meeting as the soft GDP data has shifted the balance of probabilities towards a cut.

Mr Wu said while the Australian economy is losing momentum, there were some bright spots in the economy.

“There was a fairly large increase in real household disposable incomes, up 3.4 per cent over the past year, driven by lower income taxes, the start of an RBA easing cycle, and lower inflation,” he said. 

“This should help support growth over the rest of the year, and we expect to see a pickup in GDP through 2025.”

See here to read Stephen’s full analysis.

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