Australia's GDP Surges 1.8% Year-on-Year in Q2 2025

Australia's economy demonstrated a strong rebound in the second quarter of 2025, with the Gross Domestic Product (GDP) expanding by 1.8% year-on-year. This growth surpassed the forecasted 1.6% and marked the fastest growth rate since September 2023. The quarter-on-quarter increase of 0.6% also exceeded market expectations of 0.5%.

The Australian Bureau of Statistics reported that household consumption and government expenditure were the primary drivers of this growth. Government expenditure contributed 0.2 percentage points to the growth, while public investment decreased by 0.2 percentage points, partially offsetting the positive impact. The mining sector continued to perform strongly, but its contribution to the overall economic growth was limited due to net trade dynamics.

In August, the Reserve Bank of Australia (RBA) announced a 25 basis point reduction in interest rates, bringing them down to 3.6%. The RBA expressed a cautious optimism, noting that while global economic uncertainties persist, the clarity around U.S. tariff policies has reduced the likelihood of extreme risks. This decision reflects the RBA's assessment of the economic landscape and its commitment to supporting growth.

Domestically, private demand showed signs of recovery, supported by rising real household income and an improving financial environment. However, the RBA revised down its 2024 economic growth forecast from 2.1% to 1.7%, primarily due to weaker productivity growth expectations rather than trade disruptions.

Inflation data continued to show a downward trend, with the Consumer Price Index (CPI) rising by 2.1% year-on-year in the second quarter. This was the lowest rate since March 2021 and approached the lower end of the RBA's target range of 2-3%. Analysts suggest that the accommodative monetary policy is gradually filtering through to the real economy, contributing to the observed economic growth.

Consumer confidence also saw a significant boost, with the Westpac-Melbourne Institute Consumer Sentiment Index rising by 5.7% to 98.5 in August. Although this figure remains below the 100 threshold, it indicates a shift away from pessimism. The macroeconomic forecast manager highlighted that the prolonged period of low consumer sentiment may be turning a corner, which could further support economic growth.