Australian GDP growth figures show the economy is stagnating

Australian GDP growth figures for the March quarter were released earlier today. The ABS reported that GDP rose 0.3% in the March quarter and 1.1% over the year. These are the weakest annual numbers outside the pandemic since the early 1990s.

Yes, there’s growth, but it is being held up by population expansion, government spending, and a narrow set of export categories. Certainly not by household consumption (which is flat), per‑capita GDP has now declined for five consecutive quarters. In our view, the report paints a picture of an economy that is technically expanding but functionally stagnating.

The Australian economy is technically expanding but functionally stagnating

The ABS noted that household spending rose only 0.1% in the quarter. That is effectively zero. The categories that grew were essentials: rent, insurance, health, and utilities. Discretionary spending fell again. Households are still absorbing the lagged impact of higher interest rates, and the data shows that mortgage repayments are crowding out consumption. The savings ratio fell to 0.9%, the lowest since 2007. That is not a sign of confidence. It is a sign that households are running down buffers to maintain basic living standards.

The labour market is still tight, but momentum is slowing. Hours worked fell. Job vacancies have eased. Wage growth remains solid in nominal terms, yet real wages are only now beginning to stabilise after two years of negative prints. The ABS data shows that compensation of employees rose 1.2% in the quarter, but this was driven by population growth and award wage adjustments rather than broad‑based wage pressure. Investors should not assume that the labour market can continue to carry the economy indefinitely.

Government spending remains a key support. Public demand rose 1.0% in the quarter, driven by health, disability services, and defence. Without this contribution, GDP would have been close to flat. The fiscal impulse is doing more work than monetary policy at this stage, and the national accounts make that clear. Public investment also rose, reflecting infrastructure programs at both state and federal levels. This is one of the few areas of genuine momentum.

Exports were mixed. Services exports continued to recover as tourism and education flows normalised. Goods exports were softer, reflecting weaker commodity volumes and price effects. LNG and coal volumes were steady, but iron ore volumes dipped. The ABS noted that net exports detracted from growth. This is a reversal from 2023, when net exports were a major driver of GDP. The terms of trade fell 2.4% in the quarter, reducing national income. For an economy that relies heavily on commodity cycles, this matters.

Business investment was subdued. Mining investment rose slightly, but non‑mining investment was flat. Machinery and equipment spending fell. Construction activity was constrained by labour shortages and cost pressures. The ABS data shows that private capital formation detracted from growth. This is not the profile of an economy preparing for a strong expansion. It is the profile of an economy in a holding pattern.

The key takeaway

The most important line in the entire release is the per‑capita GDP figure. It fell again, marking the fifth consecutive quarterly decline. Australia is now in a per‑capita recession. This is not a technicality. It is the clearest indicator of living‑standard pressure. Population growth is masking the weakness in underlying activity. Investors should focus on per‑capita metrics rather than aggregate GDP when assessing the true state of the economy.

Inflation remains elevated. The national accounts measure of domestic price pressures, the household consumption deflator, rose 0.7% in the quarter. Services inflation is still sticky. Insurance premiums, rents, and utilities are driving the persistence. The ABS noted that nominal household spending rose 1.1%, but almost all of that was inflation rather than real activity. This is the environment the RBA is navigating. Growth is weak, but inflation is not yet comfortably within target.

The income side of the accounts tells a similar story. Real net national disposable income fell 1.1% in the quarter. Lower terms of trade and higher interest payments are eroding national income. Corporate profits were mixed. Mining profits fell. Non‑mining profits rose modestly. The divergence reflects the shift in commodity prices and the resilience of service‑sector margins. Investors should note that profit growth is no longer broad‑based.

So what does all this mean for markets?

We believe the national accounts reinforce three themes that matter for investors in 2026.

The first is that Australia is in a low‑growth regime. The economy is expanding, but only because population growth is doing the heavy lifting. Per‑capita activity is contracting. This environment favours companies with pricing power, defensive earnings, and exposure to structural rather than cyclical demand. Healthcare, infrastructure, and essential services fit this profile. Discretionary retail does not.

The second is that monetary policy will remain restrictive for longer than markets expect. Even if the RBA is done hiking, don’t expect cuts anytime soon – it cannot cut rates meaningfully (at least without fuelling inflation) while services inflation remains sticky and the savings ratio is near zero. The national accounts show that inflation is embedded in non‑tradable categories. These are slow to turn. Investors should not position for rapid easing. The risk is that the RBA stays on hold longer than the market currently prices.

The third is that fiscal policy is now the primary stabiliser. Government spending is supporting growth, and public investment is one of the few areas of genuine momentum. This has implications for sectors exposed to infrastructure, defence, and public services. It also means that the budget will remain structurally tight, with limited room for large‑scale stimulus. Investors should expect targeted, not broad‑based, fiscal measures.

There is also a fourth theme that deserves attention. The divergence between nominal and real activity is widening. Nominal GDP rose 1.4% in the quarter, while real GDP rose only 0.3%. This gap reflects inflation and terms‑of‑trade effects. For equity investors, nominal growth matters for revenue, but real growth matters for volume. Companies that rely on volume growth will struggle. Companies that can pass through price increases will outperform.

The Bottom line on the Australian GDP growth figures

The March quarter national accounts confirm that Australia is navigating a difficult transition. The economy is not contracting, but it is not expanding in a meaningful way. Households are under pressure. Business investment is soft. Exports are no longer providing the same support. Government spending is carrying more of the load. Inflation is easing slowly but remains persistent in key categories. This is not a crisis, but it is not a comfortable position either.

For investors, the message is clear. Focus on quality. Focus on pricing power. Focus on sectors aligned with structural demand rather than cyclical recovery. The national accounts show an economy that is grinding forward, not accelerating. In this environment, the winners will be companies that can grow independently of the macro cycle. The losers will be those that rely on a consumer rebound that is not yet visible in the data.