Australian economy growth 'stronger than expected'

The Australian economy grew 0.4% in the June quarter, growing 2.1% in the year to June 2026.

HSBC chief economist Paul Bloxham said the stronger growth performance was "particularly surprising" given a sharp fall in consumer and business sentiment.

Bloxham said this was "in part due to the Middle East conflict, but also due to the RBA's three back-to-back rate hikes and the big tax shifts that were delivered in the May Federal budget".

Despite the stronger than expected read, Bloxham said the potential growth rate for the economy going forward may be slow.

"Our own estimate puts Australia's trend potential growth rate at 1.8% y-o-y, which assumes a trend productivity growth rate of 0.3%. [The] figures suggest some downside risk in the near-term to that estimate of the economy's speed limit," Bloxham said.

"These figures increase the risk that the RBA will need to hike further yet to get inflation back to target."

Domestic prices continued to grow with rising input costs weighing on most areas of the economy as oil prices rose stemming from the conflict in the Middle East.

Household consumption grew by 0.4% in the quarter, and 1.8% annually.

The Australian Bureau of Statistics (ABS) said discretionary spending led to the rise in consumption, with nearly half of the increase coming from higher growth in the purchase of vehicles.

"There were record sales of electric and hybrid vehicles as more households looked to lower ongoing operating vehicle costs," ABS said.

Purchase of vehicles was up 10.3% in the quarter and accounted for almost two thirds of the quarterly increase in consumption. Fuel spending saw a 0.6% fall in operation of vehicles and reduced travel seeing a 4.9% fall in services imports in the quarter.

"Essential spending fell 0.3% due to a reduction in electricity, gas and other fuels with lower demand due to milder winter conditions. Operation of vehicles fell as household consumed less fuel in response to elevated fuel prices and various state governments' free public transport initiatives," ABS said.

The remaining discretionary categories remained subdued, where rising cost of living pressures aligned with restrained spending.

Dwelling investment grew 1.6% in the quarter to be 5.8% higher annually.

"There are a lot of factors at play in the housing market including higher interest rates and global uncertainty, but it is encouraging to see both dwelling investment and building approvals holding up," Treasurer Jim Chalmers said.

Productivity remained flat in the quarter across the economy and up 0.2% in the market sector.

"We know that we have a long-standing productivity challenge in our economy, which is why it was such a big focus of the Budget and continues to be a substantial focus of our economic agenda," Chalmers said.

He added the results are robust in challenging international circumstances.

"It shows the resilience of Australia's economy in the face of global uncertainty and conflict. While global circumstances are challenging and people are under pressure, we've got a lot going for us and we can see some of this reflected in today's figures," Chalmers said.

"Annual growth in Australia was as strong or stronger than every major advanced economy - equal to the United States and much stronger than the rest."