Cooling economy could keep RBA on hold

Australian gross domestic product (GDP) rose 0.3% in the March quarter 2026 and 2.5% compared to a year ago, according to the Australian Bureau of Statistics (ABS).

"Economic growth slowed in the March quarter, with modest household and public sector expenditure as well as cyclone disruptions to mining and export activities," ABS head of national accounts Grace Kim said.

Household spending rose 0.5% in the March quarter. This growth includes elevated spending on electricity, gas and other fuels (up 11.7%) as government rebates ceased, raising out-of-pocket expenditure for households.

Household spending on essential goods and services increased by 0.8%, while discretionary spending rose by 0.1%.

"Rising interest rates and significantly higher fuel costs in the March month likely created an environment for more cautious consumer behaviour. This resulted in reduced spending across a range of household expenditure categories," Kim added.

Convera head of market insights Steven Dooley said the GDP figures paint a relatively flat picture.

"Growth was stalled due to weaker trade, subdued government spending, and a cautious consumer, all pulled in the same direction," Dooley said.

"The single biggest drag came from trade. Australia's import bill jumped, partly because of higher fuel prices from the conflict in the Middle East, and partly because of record purchases of computer servers for the data centres being built in New South Wales and Victoria."

Dooley said the easing of growth is a positive sign the Reserve Bank of Australia's (RBA) interest rate hikes have been working.

"Three rate rises this year have taken the cash rate to 4.35%, fully unwinding the cuts that came before. The bank's own forecasts already expect growth to slow further, to around 1.3% by the end of the year. With the economy this soft, another rate rise looks unlikely," Dooley said.

"From here, the more probable path is a long hold. However, the question is more about how many months the bank stays on the sidelines before it can start cutting."

However, VanEck head of investments and capital markets Russel Chesler warned Australia may now be entering a "stagflationary regime".

"GDP growth is slowing, unemployment is rising and inflation remains elevated," Chesler said.

"Even though inflation is high and likely to remain stubborn, we do not expect the increase in trimmed mean inflation to 3.4%, combined with the added pressure from yesterday's wage decision, to be enough for the RBA to move again in June.

"The RBA will be carefully monitoring the overall health of the economy, including employment, before making another move. Our view remains that the terminal rate for this hiking cycle is either the current cash rate of 4.35%, or possibly 4.60% if the RBA delivers one more hike later this year."