Australian National Accounts June 2025: Australia’s economy improves, but needs business investment boost 

In brief:

• Gross Domestic Product (GDP) increased by 0.6 per cent in the June quarter and 1.8 per cent over the year.
• The Australian economy is in recovery with household and government consumption, as well as net trade, contributing to growth. Meanwhile, government investment fell.
• Business investment continues to lag, which remains a concern and could limit future growth. 

From the Chief Economist

The National Accounts showed an economy in recovery, albeit an excruciatingly slow one. The best news was the uplift in consumer spending, which was supported by the February, and possibly May, interest rate cuts, and moderated inflation and improved growth in household disposable income.

2 per cent annual growth in household consumption is the best result in two years and beat the Reserve Bank’s forecast by a healthy 0.5 percentage points. It was boosted by the fortunate squeezing together of Easter and ANZAC Day holidays, end-of-year sales, and new product launches. As many households were willing to part with some hard-earned cash, the saving rate was marginally lower, while the hotels, cafes and restaurants, and recreation and culture, and transport industries, got a boost. Not so good was the bad flu season which increased spending on healthcare and also lifted government spending on Medicare and the Pharmaceutical Benefits Scheme. Households also had to spend a bit more on utilities, especially in Western Australia and Queensland, as electricity rebates were reduced in the quarter.

In stark contrast to the healthier consumer picture, was the business investment story, which has been lagging for some time. Private business investment rose just 1.0 per cent in the non-mining industries over the last year, while in the mining industry, it fell 2.7 per cent.

As a share of GDP, business investment is just 12.3 per cent of GDP: lower than the March quarter result and not far above the pandemic low of 11.1 per cent or the 1990s recession low of 10.6 per cent of GDP. Similarly, company profits have been edging down as a share of GDP for three years and business confidence measures remain soft.

Although there are some areas of strength, such as construction related to data centres and more software spending, the outlook remains mediocre. These figures emphasise the need for fresh inspiration for the business sector, against a challenging international economic backdrop. Exporting businesses have long boosted GDP. In the June quarter, a solid rise in exports due to increased iron ore and LNG shipments followed a weather affected March quarter. But with many commodity prices down from elevated levels and unlikely to return to recent highs - plus the shift away from carbon-emitting commodities globally – exports cannot be relied upon.

Housing investment was up a little in the quarter due to small increases across both new dwellings and alterations and additions. More is needed and lower interest rates and government policy should help, but only significant rather than marginal additional investment will ease housing supply concerns and affordability problems.

Public demand as a share of GDP is still at elevated levels, although government investment spending was down. This is likely temporary given plans for increased activity outlined in this year’s state and federal government budgets (although the nominal nature of these estimates means some of this likely just reflects inflated input costs).

The inflation indicators in the National Accounts suggest that the rate of price growth across the economy is at manageable levels. Domestic prices growth, at an annual pace of 3.0 per cent, is the slowest since the September quarter of 2021 and international prices growth was marginally lower at 2.9 per cent. Although not like-for-like with the narrower consumer price index data, the messages from the two data sets are broadly consistent. With inflation in the Reserve Bank’s target band, additional help from easier monetary policy is likely. But more importantly, progress on productivity enhancing reforms is essential, including incentives for business investment and innovation in the tax system, as discussed at the Economic Reform Roundtable last month.

Labour productivity growth was just 0.2 per cent across the economy, providing a timely reminder that while Australia is on the right track, there is much more work to be done. Sub-2 per cent GDP growth rates, which have been the Australian reality now for seven successive quarters, can be boosted substantially if productivity can be improved.

Household consumption rose strongly reflecting easing cost-of-living pressures 

Household consumption rose by 0.9 per cent in the June quarter, contributing 0.4 percentage points to GDP growth. This result was partly due to end of financial year sales activity and new product launches as well as the timing of Easter Monday and ANZAC day, which unusually fell in the same week this year. However, taken at face value, it suggests the recovery in household spending is underway.

In annual terms, household consumption growth picked up to 2.0 per cent, marking a strong improvement from 0.8 per cent in the March quarter. This uplift in consumer spending has been supported by higher disposable income, driven by lower inflation and interest rates. Tax payable less social assistance benefits as a share of disposable income was broadly unchanged in the June quarter but remains elevated.

The household saving ratio fell to 4.2 per cent in the June quarter, from 5.2 per cent in the March quarter, as the rise in household spending exceeded the rise in disposable income. The saving ratio has remained well below its 10-year pre-pandemic average of 6.6 per cent since December 2022.

Discretionary spending rose by 1.4 per cent in the quarter, up from 0.4 per cent in the March quarter, as price-sensitive consumers took advantage of end of financial year sales. In particular, spending on furnishing and household equipment increased by 1.7 per cent in the quarter. Over the year, discretionary spending rose by 2.6 per cent, a significant improvement on 0.4 per cent in the March quarter. Spending on essentials rose by 0.5 per cent in the June quarter, as consumers spent more on health and food. On an annual basis essential spending increased by 1.5 per cent.

The welcome easing in household budgetary pressure has not yet been enough to bring household consumption growth back to the 10-year pre-pandemic average of 2.6 per cent.  But there is room for improvement, with household consumption expected to increase further over the next year in line with improved consumer confidence and expected further interest rate cuts by the Reserve Bank.

While the unemployment rate remains low, labour market conditions have eased further in recent months, with a continued moderation presenting downside risks to the strength of recovery in consumption.

Dwelling investment subdued 

Dwelling investment growth was subdued at 0.3 per cent in the June quarter, after a strong 2.1 per cent rise in the March quarter. Over the year, dwelling investment rose by 4.8 per cent compared to 5.0 per cent in the March quarter.

New house building rose by 0.3 per cent in the quarter to be 4.8 per cent higher over the year. This follows a strong result in the March quarter, at 5.3 per cent, which was the highest rate of annual growth since the June quarter 2023. Growth in alterations and additions also eased in the June quarter, rising by just 0.3 per cent, but remains elevated in annual terms at 4.9 per cent. Ownership transfer costs rose by 1.1 per cent in the quarter as property market activity increased. In annual terms these costs continued to moderate to 1.7 per cent this quarter, from 2.8 per cent in the March quarter.

Conditions are in place for a further improvement in dwelling investment including a rise in dwelling approvals given growth in real incomes, moderating construction costs, and lower interest rates. But given supply remains constrained, housing affordability is unlikely to improve.

Labour productivity rose, but remains weak

Labour productivity – measured by GDP per hour worked – rose by 0.3 per cent over the quarter and by 0.2 per cent over the year, an improvement from the 0.9 per cent fall recorded over the year to the March quarter. Ongoing weakness in productivity growth led the Reserve Bank to recently lower its productivity growth assumption to 0.7 per cent in the medium term, highlighting a challenge for future economic prosperity. Annual growth in non-market productivity¹ has been negative since the September quarter 2022, while productivity in the market sector remained weak, recording just 0.3 per cent growth over the year.   

Compensation of employees (COE) – a measure of the economy-wide wages bill – rose by 1.1 per cent during the quarter. The public sector recorded strong growth of 2.1 per cent due to alignment of salary rises from enterprise agreements across Commonwealth agencies, as well as the extra resourcing required for the Federal Election. Private sector COE increased by 0.8 per cent as both the number of people in employment and wages increased, particularly in the health care and social assistance industry. In annual terms, COE rose by 6.7 per cent in the June quarter, which was higher than 6.5 per cent in the previous quarter and remains well above the narrower Wage Price Index measure (which was unchanged at 3.4 per cent over the year to June).

Nominal unit labour costs – a broader measure of labour costs – increased by 0.7 per cent in the quarter. In annual terms nominal unit labour costs rose by 4.4 per cent, which was the lowest increase since the June quarter 2022. The moderation in growth reflected an improvement in productivity growth. Unit labour costs are not at a low enough growth rate to elimainate upside risks to inflation from the labour market.

Company profits for the non-financial sector fell 0.1 per cent in the June quarter and were 4.0 per cent lower over the year. The mining industry was the main driver due to lower prices for iron ore, coal, and liquified natural gas (LNG), reflecting weakness in global demand as supply remained strong. As a share of GDP, profits have fallen steadily over the last three years, from 39.1 per cent in the June quarter 2022 to 35.2 per cent in the June 2025 quarter. They did, however, remain above the 30-year long run average.

Domestic prices rose but were offset by a fall in the terms of trade  

The terms of trade (ratio of export to import prices) fell by 1.1 per cent in the June quarter, which reflects a 1.7 per cent fall in export prices due to lower prices for Australia’s major mining commodities – iron ore, coal, and LNG. Falling demand for iron ore and coal from China put downward pressure on prices, while increased supply of LNG, led by the United States, drove prices lower. This was partially offset by a 0.6 per cent fall in import prices mainly due to the appreciation of the Australian dollar and lower oil prices.

Price pressures in the domestic economy, as measured in the National Accounts, increased by 0.7 per cent in the June quarter mainly due to increases in labour costs. Domestic prices continued to moderate in annual terms to 3.0 per cent. This is the slowest pace since the September quarter 2021 and will likely bring some comfort to the Reserve Bank that domestic prices are now within the target band. International prices fell by 0.7 per cent in the June quarter. International prices rose in annual terms by 2.9 per cent, although this was lower than the 3.8 per cent rise in the previous quarter. 

Private investment remains weak putting the recovery at risk

Private investment was relatively unchanged, increasing by 0.1 per cent in the June quarter. Over the year to June, private investment was 1.5 per cent higher, down from 2.1 per cent in the March quarter.

Business investment remains weak, falling by 0.1 per cent in the June quarter. The main drivers were non-dwelling construction which fell by 1.2 per cent thanks to falls in renewable energy projects and mining investment, which was partially offset by a 1.6 per cent rise in intellectual property products and a 0.1 per cent rise in machinery and equipment.

Over the year to June, business investment rose by just 0.1 per cent, much lower than the Reserve Bank’s forecast of 0.6 per cent. Business investment is sitting at around 12.3 per cent of GDP, which is weak on a historical basis and close to the lows during COVID and the 1990s recession.

Mining investment continued to lag, falling by 1.3 per cent in the quarter, while non-mining investment rose by 0.2 per cent.

Capital expenditure intentions for 2025-26, which is a leading indicator of business investment, was $175 billion, which is 3.1 per cent higher than the same reading for 2024-25. This was mainly driven by a lift in non-mining capex plans which rose 4.7 per cent, while mining capex expectations were 0.6 per cent lower compared to the same reading in 2024-25. This measure is in nominal terms and given so far this year it is on par with last year, there is a significant chance that in real terms, real activity will be lower.

Public demand made no contribution to growth in the June quarter

Public demand was broadly unchanged in the June quarter and made no contribution to GDP growth, as government consumption rose, but was offset by a fall in government investment.

Government consumption - which mostly reflects recurrent spending - increased by 1.0 per cent in the June quarter, up from 0.3 per cent in the previous quarter, and contributed 0.2 percentage points to GDP growth. Federal spending rose by 2.4 per cent, driven by the Federal election-related activity and higher Medicare and Pharmaceutical Benefits Scheme payments due to a bad flu season and greater bulk billing. In addition, there was an increase in defence consumption associated with military exercises which occurred during the quarter. This was partially offset by lower spending by state and territory governments, which fell by 0.3 per cent as state government electricity rebate schemes came to an end. In annual terms, growth in public consumption moderated slightly to 4.0 per cent in the June quarter, from 4.2 per cent in the March quarter. As a percentage of GDP, government consumption rose to a record high of 22.6 per cent in the June quarter.

Public investment fell by 3.9 per cent in the June quarter, detracting 0.2 percentage points from GDP growth. This was driven by weakness across both national and state and territory governments, reflecting lower investment in defence, and the completion of transport and health infrastructure projects. Public investment declined by 0.8 per cent over the year to the June quarter but remains elevated compared to the 10-year pre-pandemic average.

As a percentage of GDP, public demand was slightly lower in the June quarter at 27.9 per cent but remains well above the 10-year pre-pandemic average of 22.8 per cent. As highlighted in our State budgets publication, recent federal and state budgets point to strong growth in infrastructure investment, along with continued expansion of government services in response to high demand. This is expected to keep public demand elevated at near record highs.

Net trade made a modest contribution to growth

Net trade contributed a modest 0.1 percentage points to growth in the June quarter, reflecting a 1.7 per cent rise in exports, which was partially offset by a 1.4 per cent rise in imports.

Goods exports increased by 1.4 per cent in the June quarter as iron ore production recovered from weather impacts and there was ongoing strength in grain exports. Service exports rose by 3.3 per cent in the June quarter, after a small increase in March. This reflected higher short term holiday arrivals to Australia, while education related travel was flat.

Service imports also rose by 3 per cent in the quarter as more Australians travelled to Europe, and travel to Asia remained elevated. Goods imports rose by 0.8 per cent led by consumption goods thanks to increased demand for motor vehicles, in particular electric vehicles.

Inventories detracted 0.1 percentage points from growth.