Australia’s economy expanded modestly in the September quarter as investment in data centres and housing offset weaker trade and soft per-capita activity, fuelling market bets that the Reserve Bank of Australia (RBA) may not need to tighten policy as aggressively as feared.
The Australian Bureau of Statistics (ABS) reported gross domestic product (GDP) rose 0.4% in the September quarter 2025, down from an upwardly revised 0.7% in the June quarter and below market expectations of 0.7%. Annual growth was 2.1%, edging up from a revised 2% but short of the 2.2% consensus.
ABS head of national accounts Grace Kim said the data showed “steady economic growth in line with population trends,” with GDP per capita flat over the quarter.
Data centre build-out and housing drive growth
Private investment was the standout contributor, adding 0.5 percentage points to quarterly growth. The lift was driven largely by spending on machinery and equipment for expanding data centres, as businesses pour capital into infrastructure to support artificial intelligence workloads and cloud computing.
Housing also played a key role, with dwelling investment contributing 0.2 percentage points amid stronger residential construction and solid investor demand.
Public investment rebounded 3%, led by large-scale projects in renewable energy, water, telecommunications and rail, helping to buttress activity against softer consumer momentum.
Net trade detracted 0.1 percentage points from growth as imports outpaced exports, reflecting increased purchases of fuels, lubricants and computer equipment.
Households cautious as savings ratio rises
Household consumption grew 0.5%, but the composition pointed to ongoing consumer caution. Spending on essential services such as banking, electricity, health and superannuation rose, while discretionary expenditure fell 0.2%, suggesting households remain under pressure from high prices and borrowing costs.
The household saving ratio climbed to 6.4%, supported by higher wages, bonuses and superannuation income. That rise in savings indicates many households are choosing to repair balance sheets rather than ramp up spending, despite a tight labour market.
Mining profits increased 1.2% despite lower production, as higher export prices and volumes encouraged firms to run down inventories. Inventory reduction subtracted 0.5 percentage points from GDP.
For the first time, rooftop solar generation has been incorporated into the National Accounts. While it makes only a minimal direct contribution to GDP, the ABS estimates it saved households more than $3 billion in 2024-25.
Markets rally as weaker GDP cools RBA fears
The softer-than-expected GDP read triggered an immediate reaction across financial markets. The S&P/ASX 200 Index jumped 29.7 points, or 0.3%, to 8608.42 in late-morning trade after spending much of the session little changed.
The Australian dollar slipped to US65.57¢ from a three-week high of US65.76¢, while bond yields reversed earlier gains. The policy-sensitive three-year yield fell 8 basis points to 3.88%, and the 10-year eased 6 basis points to 4.59%, as investors marked down the risk of further tightening.
Money markets now imply a 57% chance the RBA will lift the cash rate next year, down from as much as 97% before the GDP release. They also price a 12% probability that the cash rate could be cut to 3.35% between now and March, although the central bank is widely expected to hold at 3.6% at next week’s final board meeting for the year.
The figures land against a backdrop of inflation accelerating to 3.8% in October, above the RBA’s 2% to 3% target band.
Governor Michele Bullock has warned that more persistent inflation would have “implications for the future path of monetary policy”, leaving the outlook finely balanced between sticky prices and a slowing, population-driven economy.