Australia's economy expanded at the fastest pace in two years in the December quarter as lavish tax cuts helped spur consumer spending after a long fallow period, though annual growth was still pedestrian compared with the historic trend.
Any progress was welcome for the Labor government of Prime Minister Anthony Albanese, which faces a tough election in coming weeks that could result in defeat or a hung parliament.
Analysts reckoned the modest revival should also not be a bar to the Reserve Bank of Australia cutting interest rates again, especially given the mounting risks to global growth from US tariffs.
Data from the Australian Bureau of Statistics today showed real gross domestic product (GDP) rose 0.6% in the fourth quarter, pipping market forecasts of 0.5% and the best result since late 2022.
Output per person edged up 0.1%, ending seven quarters of decline in a row.
Annual growth accelerated to 1.3%, from a recession-like 0.8% the previous quarter, though it remained some way short of the 2.5% pace that used to be considered "normal".
Household spending, which accounts for half of GDP, finally revived to add 0.2% percentage points to GDP, helped by slowing inflation and billions in tax cuts.
"Household discretionary spending rose as people made the most of retail sales events and increased spending on hospitality as they enjoyed music and sporting events," said ABS head of national accounts Katherine Keenan.
An increase in the household savings ratio to 3.8% also suggested consumers had some spending power for the future.
Net exports and government spending both made useful contributions to activity. Indeed, the public purse accounted for a full percentage point of GDP growth last year, thanks in part to massive investment in infrastructure.
Economic output for the whole of 2024 amounted to A$2.7 trillion ($1.69 trillion) in current dollars, an increase of 3.7% on the previous year.
Measures of inflation in the report showed a welcome moderation with the deflator for domestic demand slowing to an annual 3.5% from 3.7% in the third quarter.
Australia's disappointing track record on productivity was proving slow to turn around with output per hour still negative in the quarter and down 1.2% for the year.
The RBA has cautioned that annual productivity growth needs to recover to around 1.5% to ensure that inflation stays in its 2% to 3% target band over time.
Consumer price inflation did slow to 2.4% in the fourth quarter, but the core measure the RBA focuses on only reached 3.2%. This was enough for policymakers to cut rates by a quarter point to 4.1% in February, the first easing in four years, but also warn that further cuts were not guaranteed.
Markets are wagering it could ease again in May assuming core inflation slows as expected this quarter.
