Australia Investment

Economic growth slows in the first quarter of 2026

GDP reading disappoints markets: Australia's GDP increased 0.3% in seasonally adjusted quarter-on-quarter terms in Q1, following a 0.9% expansion in the prior quarter. Q1's reading was the weakest since Q1 2025 and below market expectations. While domestic demand—particularly data center investment—was strong, net exports were a drag as extreme weather disrupted exports.

Large contrast seen between net exports and domestic indicators: Relative to the previous quarter's data, figures in Q1 softened for government consumption (-0.2% on a seasonally adjusted quarter-on-quarter basis vs +0.9% in Q4) and exports of goods and services (-1.1% vs +1.4% in Q4). Government spending was weighed on by the ending of energy bill relief, and exports by weather disruptions. In contrast, readings picked up for private consumption (+0.5% vs +0.4% in Q4), fixed investment (+3.0% vs +0.8% in Q4) and imports of goods and services (+2.1% vs +1.4% in Q4).

Panelist insight: Caveating the private spending data, United Overseas Bank’s Lee Sue Ann said: “Household spending rose 0.5% q/q in 1Q26, with gains driven largely by higher out-of-pocket expenditure on utilities following the expiry of government rebates. Spending on electricity, gas and other fuels surged 11.7% q/q. Essential goods and services spending increased 0.8% q/q, while discretionary spending edged up just 0.1% q/q, highlighting a more cautious consumer backdrop amid higher interest rates and fuel costs. Household saving also declined, with the saving ratio falling to 6.2% from 7.0% in 4Q25, suggesting that consumption growth is increasingly being supported by a drawdown of savings buffers as income growth remains constrained.”

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