Australian GDP in Q3 Grew 0.4% But Misses Forecasts: Why Defensive ASX Stocks Look Attractive Now

Australian GDP in Q3 shows that its economy is…complicated. Growth is stronger than last year, but the latest quarterly numbers fell short of expectations. Australia’s GDP rose by 0.4% in the September quarter, missing market expectations of 0.7%, according to data released by the Australian Bureau of Statistics. While annual GDP accelerated to 2.1%, the fastest pace since mid-2023, the quarterly disappointment tells a story that investors cannot ignore. However, inflation in October stayed at 3.8%, above the Reserve Bank’s 2–3% target. This makes rate cuts very unlikely and even raises the chance of further hikes. For investors, the key takeaway is clear: focus on defensive stocks that can handle slower growth and higher borrowing costs.

What are the Best ASX defensive stocks to invest in right now?

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Australian GDP in Q3: Strong Investment, But Weakness Beneath the Surface

At first glance, Australia’s GDP numbers show some positives. Private investment added 0.5 percentage points to growth, driven largely by data centre construction across New South Wales and Victoria. Household consumption contributed 0.3 percentage points, while total public demand added 0.4 percentage points through government spending and infrastructure investment.

However, a sharp inventory drawdown dragged growth down by 0.5 percentage points, masking this underlying strength. What concerns us more is that per capita GDP fell for the tenth time in the past thirteen quarters. This means Australians continue getting poorer on average, even as the economy technically grows.
For investors, the message is clear: headline GDP can be misleading. Consumer-focused stocks may face pressure if household budgets remain tight, even when overall growth appears positive.

Rate Expectations Have Flipped: Time to Adjust Your Portfolio

Markets have responded quickly. Markets have responded quickly. Swap pricing now implies the RBA will hold rates steady through most of 2026, with roughly 70% probability of a rate hike by year-end. This represents a complete reversal from earlier optimism about further cuts.
We believe this shift changes the investment playbook meaningfully. Here’s what different sectors face:

Sectors likely to struggle:

• REITs and property trusts (sensitive to higher rates)
• High-growth tech stocks (valuations compress when rates stay elevated)
• Heavily leveraged companies (refinancing costs rise)

Sectors positioned to outperform:

• Consumer staples (people still need groceries regardless of rates)
• Healthcare (demand remains steady through economic cycles)
• Utilities and infrastructure (essential services with pricing power)
• Gold miners (benefit from inflation and uncertainty)

Defensive ASX Stocks Worth Watching

For investors seeking shelter, we see several names offering attractive risk-reward profiles:

• Coles Group (ASX: COL) – Trading around 18x forward earnings, the supermarket giant offers defensive cash flows and recently lifted its dividend. Grocery demand stays resilient even when wallets tighten.
• Telstra (ASX: TLS) – Australia’s largest telco, provides essential services with sticky monthly revenue. The 4%+ fully franked dividend yield offers income while you wait.
• Northern Star (ASX: NST) – Gold provides a natural hedge against both inflation and economic uncertainty. NST remains up over 50% year-to-date and offers scale across multiple producing mines.
• Propel Funeral Partners (ASX: PFP) – This small-cap offers truly recession-proof demand. Australia’s ageing population drives funeral volumes higher at roughly 2.8% annually through 2035, providing visible long-term growth.

The Investor’s Takeaway

Australia’s economy is balancing on a fine line. Growth hasn’t collapsed, but falling per capita GDP and stubborn inflation are clear warning signs. For investors, this means leaning towards defensive positioning. Companies with strong pricing power, steady demand, and low debt are best placed to ride out a hawkish RBA or slowing momentum.

The key risk ahead is Q4 consumer spending. If households tighten their belts during the holiday season, discretionary retailers could face weaker earnings, while defensive sectors are likely to hold firm. Because if consumers are tightening their belts during Black Friday/Christmas…what hope is there for the New Year?