Australia's corporate profits unexpectedly fell by 0.5% quarter-on-quarter (qoq) in the first quarter of 2025, a stark contrast to the 6% growth seen in Q4 2024 and a miss from market expectations of a 1.1% rise.
The latest Business Indicators print from the Australian Bureau of Statistics (ABS) reverses the upward momentum seen at the close of last year and adds to a recent spate of underwhelming data that has clouded the domestic economic outlook.
For the year to March 2025, corporate profits were down 5%, following a 6.2% annual drop recorded in the fourth quarter of 2024. The slowdown reflects broader corporate challenges, particularly within sectors like mining and financial services that are feeling pressure from global economic uncertainty.
Financial services sector records sharp drop in profits
A sharp decline in profits for the financial services sector was a key contributor to the weak report, with the ABS reporting a significant 10.6% drop in the first quarter. This marks a sharp reversal from the sector’s 36.2% growth in the December 2024 quarter, and highlights the growing pressure on banks and other financial institutions.
Higher interest rates, coupled with rising operational costs and increased regulatory scrutiny, have squeezed margins, leading to a notable reduction in profitability.
While demand for financial products remains strong, the higher cost of capital and a slowing economy have started to weigh heavily on the sector. The financial services industry is also facing the impacts of tightening credit conditions, which have further dampened earnings expectations in 2025.
Mining sector faces tough conditions
The mining sector was among the hardest-hit industries in the year’s first quarter, experiencing a 6% drop in profits. In line with the overall decline in corporate earnings, mining profits have been pressured by lower commodity prices and rising input costs. The impact of fluctuating demand for key resources such as coal, iron ore and copper has added to miners’ challenges.
Meanwhile, seasonally adjusted wages and salaries in the sector rose 1.3%, while sales of goods and services fell 3.4%. Seasonally adjusted inventories rose 3.5%.
Despite the persistent demand for critical minerals, Australian miners have been facing headwinds in global markets, where pricing volatility and geopolitical tensions, particularly between the US and China, are weighing heavily on investor sentiment. This drop in profitability is a stark contrast to the December 2024 quarter, when mining profits rose 6%.
Wages and salaries rise, inventories up
Meanwhile, wages and salaries grew by 1.4% in the March 2025 quarter, slightly ahead of market expectations. This is in line with the previous quarter.
The Wage Price Index (WPI) for March, also released on Tuesday, increased by 0.9% quarter-on-quarter and 3.4% year-on-year, surpassing expectations of a 0.8%/3.2% increase. The rise was partly driven by wage adjustments for underpaid sectors, particularly aged care and childcare workers, marking a boost to private sector wages.
In addition, the Fair Work Commission an average increase in the minimum wage of 3.5%, slightly lower than the 3.75% rise implemented in the previous year.
The ABS data also showed inventories have increased by 0.8% in chain volume terms, up from 0.1% in the December quarter, signalling that businesses may be positioning themselves for potential demand upticks, despite the overall slowdown in profits.