Sequential growth climbs to a two-year high in Q4

Faster-than-expected upturn points to easing headwinds to activity: The economy seemingly turned a corner at the tail end of 2024, with GDP growth coming in at 0.6% on a seasonally adjusted quarter-on-quarter basis in the fourth quarter. The reading was above the third quarter’s 0.3% print, marked a two-year high and outpaced market expectations. On an annual basis, economic growth sped up to 1.3% in Q4 compared to the previous quarter's 0.8%, likewise surprising markets to the upside. Still, annual economic growth slowed to 1.0% overall in 2024 (2023: +2.1% yoy), marking the worst result since 1991—barring 2020’s pandemic-induced downturn.

Private spending and net exports underpin the acceleration: Domestically, the sequential quarterly uptick chiefly reflected a recovery in private consumption, which increased 0.4% in the fourth quarter (Q3: -0.1% qoq s.a.), benefiting from the fastest increase in real wages in four-and-a-half years. That said, tight borrowing conditions likely capped the improvement as the household savings ratio climbed to a two-year high of 3.8%. Moreover, elevated interest rates dented fixed investment growth, which slowed to 0.7% in Q4, compared to 1.8% logged in the previous quarter; a softer rise in public fixed investment outweighed renewed growth in private fixed investment. In addition, public spending growth cooled to 0.7% (Q3: +1.4% qoq s.a.). On the external front, net trade contributed 0.2 percentage points to overall growth, improving from Q3’s 0.1 percentage-point addition. Exports of goods and services growth hit an over one-year high of 0.7% in the fourth quarter (Q3: +0.2% qoq s.a.). Meanwhile, imports of goods and services bounced back, growing 0.1% in Q4 (Q3: -0.2% qoq s.a.).

Economic growth to rebound in 2025: Our panelists expect sequential growth to stabilize around Q4’s level through Q4 2025. As a result, our Consensus is for the economy to pick up pace from 2024’s weak result overall in 2025 as households tap into their savings and benefit from healthy real wage growth, income tax cuts and lower interest rates. Faster momentum in exports, healthy population growth and sturdy global commodity demand will add impetus. The health of the Chinese economy and U.S. trade policy will be key to monitor.

Panelist insight: Analysts at the EIU commented: “This was the strongest quarter of 2024, and is clearly indicative of the economy improving. EIU continues to expect real GDP growth to gradually accelerate in 2025. […] We remain confident in our call for strengthening private consumption growth, which ought to more than offset a more moderate pace of public-sector spending. The biggest area of concern for the economy is private investment, which we believe is the component most vulnerable to any delay in the RBA's easing cycle, as well as the volatile geopolitical sentiment of the moment.” Nomura’s Andrew Ticehurst and David Seif said: “Our view is that the data highlight that the economy has likely moved through the weakest part of the growth cycle. We think this view makes sense, given tax cuts from 1 July last year, the lower AUD, and given the last rate hike was delivered some 15 months ago (November 2023), with a first rate cut delivered last month.”

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