Australia GDP 2026: Economic growth slows to 2.1pc following three rate hikes

Australia’s economic growth pace has slowed in the face of three interest rate rises and could be squeezed further with another possible Reserve Bank hike to tackle persistent inflation during a prolonged productivity crisis.

Gross domestic product in the year to June 30 eased to 2.1 per cent, down from March’s annual pace of 2.5 per cent.

But the weaker growth pace was still better than market expectations of a 1.8 per cent expansion, which has stirred expectations of another interest rate increase in less than four weeks’ time.

The latest data from the Australian Bureau of Statistics comes as three of the big four banks - Commonwealth, NAB and ANZ - forecast another hike this year that would take the cash rate to a 15-year high of 4.6 per cent, with inflation in July remaining above the RBA’s 2-3 per cent target for the 12th straight month at 3.5 per cent.

Australia’s productivity crisis shows no sign of recovering with output for every hour worked shrinking by 0.2 per cent during the last financial year to be flat in the June quarter, meaning higher production costs are more likely to be passed on to customers which keeps inflation high.

GDP per capita, or the value of goods and services divided by Australia’s population, was flat in the June quarter.

Marc Jocum, senior investment strategist with Global X ETFs, said the RBA could be forced to hike rates again at its next meeting on September 29.

“With consensus now shifting towards another rate hike this year, today’s stronger-than-expected growth makes it increasingly difficult for the RBA to justify sitting on its hands,” he said.

“The RBA now faces an ugly policy dilemma. The lagged effects of previous rate hikes are still working through the economy, but inflation remains stubbornly high.

“That could make for a tough second half of the year, with the uncomfortable spectre of stagflation looming large.”

The construction of new data centres to power artificial intelligence and renewable energy projects had fuelled business investment, the ABS data showed.

But Deloitte Access Economics partner Stephen Smith said the AI boom alone would be unlikely to solve Australia’s productivity crisis that is prolonging Australia’s inflation problem and making another rate rise this month more likely.

“Australia is experiencing inflation at rates of growth that would have once been unremarkable,” he said.

“That is the defining challenge of a low-productivity, supply-constrained economy.”

Treasurer Jim Chalmers noted Australia’s annual economic growth pace was equal to the world-leading US, which has a much lower 3.75 per cent key interest rate compared with Australia’s 4.35 per cent cash rate.

“Annual growth in Australia was as strong or stronger than every major advanced economy – equal to the United States and much stronger than the rest,” he said.

“This is a robust result in challenging international circumstances.

“It shows the resilience of Australia’s economy in the face of global uncertainty and conflict.”

With private investment otherwise weak, the Australian Chamber of Commerce and Industry is warning that onerous restrictions on data centres would deprive Australia of much-needed new technology.

“Blanket restrictions, moratoriums or one-size-fits-all rules would drive investment offshore without solving energy, water or planning constraints,” it said in a submission to a Senate inquiry on AI and data centres.

Australians are nonetheless saving more, with 6.5 per cent of income put away in the June quarter, up from 6.4 per cent in the March quarter, as a result of wage rises, bank interest and inflation-indexed social security benefits causing disposable incomes before taxes and bills to outpace household spending increases.