Australia’s Q3 GDP Hits 2-Year High

Australia’s economy grew 2.1% in Q3-its fastest pace in nearly two years-driven by strong investment and solid consumer demand, though the growth slightly missed analysts’ expectations.

sarah

Dec 3, 2025 - 10:59

Australia’s Q3 GDP Hits 2-Year High

Australia's third-quarter economic growth fell short of analysts' expectations, but strong investment and consumer demand led to the fastest growth in nearly two years.

Data from the Australian Bureau of Statistics on Wednesday showed the country's GDP grew 2.1% year-on-year, the fastest growth since the third quarter of 2023, when the economy expanded at a similar rate. Economists had expected GDP growth of 2.2%.

On a quarter-on-quarter basis, Australia's GDP grew 0.4%, while a Reuters poll had predicted 0.7%.

"This decline is not indicative of a significantly weakened economy," said Harry Murphy Cruz, head of economic research and global trade at Oxford Economics. He added that excluding inventories and trade, the domestic economy grew 1.2% compared to the previous quarter—the fastest growth in more than two years.

Echoing this sentiment, Sunny Nguyen, Head of Australia Economics at Moody's Analytics, attributed the lower-than-expected headline figures in part to businesses reducing inventories "faster than expected."

"But they say more about timing and accounting than internal final demand," Nguyen added.

Domestic final demand contributed 1.1 percentage points to growth. Private investment grew at the fastest pace since March 2021, driven by business investment in machinery, equipment, and large data centers in New South Wales and Victoria.

Household consumption continued to grow, driven by insurance, electricity, gas, rent, healthcare, and food.

Meanwhile, net trade was a major drag, hurting the economy by 0.1 percentage points, as import growth exceeded export growth in the three months through September.

Before the GDP data was released, Reserve Bank of Australia Governor Michelle Bullock warned that the economy may have reached its potential growth limit, at a time when inflation remains above the bank's target. Bullock said the board would take action if there was renewed pressure on prices.

The country's inflation rose in October, increasing 3.8% year-on-year, the fastest pace in seven months, and exceeding the RBA's target range of 2% and 3%.

At last month's monetary policy meeting, the central bank kept its interest rate unchanged at 3.6%, stating that it was cautious about further easing given the strengthening economy, tight labor market, and persistent inflation pressures.

Rate Bets

Cruz said, "The Q3 data confirms that the economy is still not to the RBA's liking," adding that a rate cut is "off the table for the time being" and that a rate hike next week to curb inflation "cannot be ruled out."

The Australian government's 10-year bond yield rose 4 basis points to 4.650 after the release. It has risen 55 basis points since mid-October.

Bullock said last month that the current interest rate cut cycle is nearing its end, with the central bank projecting inflation to remain above its target range of 2% to 3% until the second half of next year.

The RBA's board will meet next week and is expected to keep interest rates at 3.6%.

In the second quarter of this year, Australia's economy grew 1.8% year-on-year, compared with 1.3% in the previous quarter, supported by domestic spending, including household and government consumption.