When the Bureau of Statistics released the GDP figures on Wednesday, the June quarter 0.4% growth figure immediately drew headlines of a rate rise to come, but there is little within the GDP figures that suggests an economy needing slowing.
Before the release, the average expectation from banking economists and those throwing a dart at a board was that the economy in June would grow by 0.3%. In the end it grew 0.4% and brought out the suggestions that the growth was “above expectations” and thus in some way hot and in need of cooling off by another interest rate rise.
The market immediately priced in a rate rise by November.
Please.
The difference between 0.3% and 0.4% is essentially a rounding error.
And think on this – the Bureau of Statistics revised the growth for the June quarter last year by more than that difference.
Wednesday’s GDP figures suddenly showed the economy didn’t grow as strong in June 2025 than previously thought, but that it grew better in the September 2025 quarter than was first estimated:
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As it is, 0.4% growth is pretty crap.
Sorry, but it is.
Over the past 30 years, more than two-thirds of the time the economy has grown faster than that. Given the March quarter had just 0.3% growth, it means in the past six months the economy grew just 0.7% – essentially at half-speed.
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So forgive me if I am not jumping on board the “we need to raise rates to slow down this super hot economy” train.
The news of the economy at the moment is one of give and take.
The biggest driver of the economy in March was investment in machinery and equipment (mostly stuff to go in datacentres); in the June quarter, because not as much of that equipment was bought, it was the biggest drag on the economy:
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Except pretty much all of that datacentre equipment is imported – so what’s good for investment is “bad” for trade.
When a company buys equipment from overseas, it increases GDP under business investment. But because imports reduce “net trade” (essentially exports minus imports), it in effect is cancelled out by the rise in imports.
This leads to some pretty docile brains (many of whom occupy the White House offices) thinking that imports are bad for the economy, and reducing them will make GDP go up.
That is false, not just because the maths doesn’t work like that, but if that imported equipment creates employment, leads to higher wage growth and better living standards, then that is a very good thing.
This is important when we look at the current “boom” in investment of machinery and equipment. Over the past three years, such investment has gone up 14%. But if we remove the imports of machinery and equipment, then such investment has actually fallen 8%:
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Will those datacentres generate employment? I guess through some construction. But given those workers would already have had plenty of work to do building houses and apartments, the overall impact is pretty limited.
And no one is going to be building a cafe near a datacentre to capture all the business it will bring in. Much of the “business” of datacentres will occur in other countries, and much of the profits will go there as well.
It does, however, make it look like there is a lot of investment going on – and that has made the Reserve Bank worried that things need to cool down.
A similar issue applies to household spending.
Usually more “discretionary” spending is good. People buy goods and services they don’t “need” when they are feeling secure and happy.
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In the June quarter, overall household spending grew 0.4%, but discretionary spending jumped 1.4%. This would suggest that people are spending like it’s going out of style.
But half of the discretionary spending was on new motor vehicles, and primarily electric ones. In the June quarter Australians bought 10% more vehicles than they had in the March quarter:
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As the ABS notes, “there were record sales of electric and hybrid vehicles as more households looked to lower ongoing operating vehicle costs”.
And why did that happen? Because the Iran war and rising petrol prices suddenly made people think buying an EV or hybrid was not a discretionary choice, but a very essential purchase.
If you take out the purchases of vehicles, the ABS notes “the remaining discretionary categories saw subdued growth, where rising cost of living pressures aligned with restrained spending”.
The rising costs that most affected households were the increased mortgages. Australian households spent 10.4% more repaying mortgages in the June quarter, which wiped out a third of the increase in household income.
Overall inflation in the economy rose by just 3.1% – up a bit, and driven as it has been recently by profits growth rather than wages:
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So, the economy limps along – amazing, really, given the three rate rises and higher petrol prices. And while investors might believe the RBA will see this limp growth as a reason to raise rates, I would hope they look at the reality rather than the expectations.
