Economic Pulse: What 4Q24 GDP Tells Us

The Australian economy recorded a 0.6% expansion in the December quarter, reflecting broad-based but modest growth. Over the year, GDP increased by 1.3%, continuing a trend of economic expansion. Both public and private sector activity contributed, with household consumption, business investment, and government spending all playing roles in sustaining growth. Although GDP per capita increased by 0.1%, following seven consecutive quarters of decline, the marginal increase underscores ongoing challenges in productivity and per-person economic output.

Despite being back-dated, the national accounts data provide valuable insights into the economy’s momentum as it faces new challenges, such as external tariff risks. From the Reserve Bank of Australia's (RBA) perspective, this data provides mixed signals for monetary policy. While GDP growth remains moderate, there are underlying inflationary risks, particularly from rising wages and persistent services inflation. Labour market conditions remain tight, with employment growing and wages continuing to rise. The increase in household savings suggests some financial resilience, but weak per capita growth highlights ongoing pressures on living standards. 

Household consumption rose by 0.4% in the quarter, supported by discretionary spending on retail goods, hospitality, and entertainment. Black Friday and Cyber Monday sales provided a temporary boost, while large sporting and music events also contributed to stronger consumer activity. Essential spending increased, particularly in health and utilities, reflecting the impacts of higher prices and seasonal factors such as heatwaves in New South Wales and Victoria. Meanwhile, the household savings rate edged up to 3.8%, as income growth outpaced household consumption. We believe the uptick in consumption was largely driven by seasonal factors and expect the discretionary expenditure trends to lose steam in 1Q25. 

Public spending continued to support the economy rising 0.7%, driven by increased hiring in essential services such as health, education, and policing. Public investment grew by 1.8%, reflecting increased infrastructure spending on transport, water, and renewable energy projects at the state and federal levels. Private investment rose modestly by 0.3%, led by business investment in renewable energy and mining projects, though residential construction remained subdued due to cost pressures and labour shortages. 

The terms of trade rebounded after three consecutive declines, rising 1.7% over the December quarter. This was primarily driven by higher export prices, particularly for mineral ores and liquefied natural gas, buoyed by stronger demand from China following its stimulus measures. Rural goods exports also saw price increases due to high crop yields and robust international demand. However, import prices rose 0.8%, partly offsetting these gains, as the depreciation of the Australian dollar made imported goods more expensive.

Net trade made a positive contribution to GDP, with exports increasing by 0.7% and imports rising only slightly by 0.1%. Service exports, particularly intellectual property services and business-related travel, were key drivers of growth. The depreciation of the Australian dollar also made Australian exports more competitive, supporting sectors like tourism and agriculture.

State-by-State Performance

Economic performance varied across states, reflecting differences in government spending, household consumption, and investment activity. While public sector investment and infrastructure spending supported growth in several regions, private sector investment remained mixed, with declines in machinery and equipment in some states. Household consumption showed resilience in sectors like hospitality and healthcare, but discretionary spending was subdued in certain areas. The following breakdown highlights how each state fared in the December quarter.

New South Wales led the states with a 0.7% increase in final consumption, supported by higher government spending across multiple departments and resilient household consumption in hospitality, health, and housing services. While construction activity remained strong, with non-dwelling construction rising 3.1%, investment in machinery and equipment fell, weighing on overall private investment growth. Public capital spending saw a notable boost from state and local corporations, though general government investment declined slightly.

Victoria recorded modest growth of 0.2% in final consumption, with household spending driven by healthcare, dining, and household goods. However, a fall in state and local government expenditure dampened overall growth. Private investment expanded 1.4%, led by machinery and equipment purchases, while public capital formation surged 2.5%, supported by strong infrastructure spending at the state level. 

Queensland saw a 0.6% rise in consumption, but private investment contracted 2.5%, as declines in machinery and non-dwelling construction outweighed small gains in ownership transfer costs. Public investment, however, grew 3.0%, helping offset the private sector weakness.

Western Australia experienced a 0.5% rise in consumption, buoyed by higher energy costs and household goods spending, while private investment expanded 1.7%, led by non-dwelling construction and machinery investment. Public investment rose sharply, particularly through state and local corporations.

South Australia’s consumption edged up 0.3%, though household spending was flat. A strong rise in government consumption balanced out declines in vehicle purchases and energy spending. Private investment fell 2.3%, dragged down by weak construction and machinery investment, though dwelling investment provided some support. 

The Australian Capital Territory (ACT) saw a 0.4% lift in consumption, with government spending rising but household expenditure falling due to weak transport and recreation spending. Investment declined across both private and public sectors, with a sharp drop in machinery and equipment purchases, partially offset by gains in engineering construction.

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