Brakes on rates as economic growth hits the fast lane
Australia’s economic growth will reach its fastest pace in more than two years, driven by a recovery in government spending.
Economists expect data released by the Australian Bureau of Statistics on Wednesday to show annual growth in the country’s gross domestic product accelerated from 1.8 per cent to 2.3 per cent in the September quarter.
This would be the strongest growth since March 2023.
The RBA’s last economic forecasts, published in November, predicted GDP would grow by just two per cent.
The Commonwealth Bank’s economics team said this acceleration was driven by the increase in public investment announced by the ABS on Tuesday, which rose 3 per cent in the September quarter after falling 3.5 per cent in the previous three months.
“We had predicted that the peak of the public investment pipeline had been breached following weakness in public investment in the first half of this year,” CBA economists Ashwin Clarke, Lucinda Jerogin and Belinda Clarke said in a research note.
“But today’s data suggests that may not be the case.”
CBA expects GDP growth to rise to 2.2 per cent, while Westpac’s economic team is forecasting a 2.3 per cent increase.
ANZ is forecasting a 2.1 per cent rise as it became the third major bank to rule out further rate cuts on Tuesday.
ANZ Head of Australian Economics Adam Boyton said the Australian economy was approaching its speed limit.
With growth around potential, inflation above target and the labor market still tight, the central bank will likely be cautious about further easing, the RBA said.
“At the same time, the increase in the unemployment rate this year and contradictory signals in leading demand indicators make it difficult to see a situation for an interest rate increase in 2026.”
Financial comparison site Canstar said 34 banks increased at least one term deposit in November, compared to only six in July.
“Of course, if term deposit rates are the canary in the coal mine then further cash rate cuts are unlikely,” Canstar data insights director Sally Tindall said.
The RBA is unlikely to raise interest rates at its final meeting of the year next week.
But weak productivity makes the central bank’s job harder by lowering the speed limit of the Australian economy – the potential growth rate it can achieve without increasing inflation.
If spendthrift governments don’t ease the pedal, interest rates may need to be lifted sooner rather than later, as HSBC chief economist Paul Bloxham has argued.
The Paris-based Organization for Economic Co-operation and Development has predicted Australia’s GDP will grow by 2.3 per cent in 2026 and 2027, with the economy driven more by the private sector.
In its latest economic outlook, the OECD called on all levels of government to urgently ease development restrictions to increase housing supply to strengthen competition and reduce regulatory fragmentation between states and territories.
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