Australia’s economy slows as cost of living and high oil prices hit growth

Australia’s economy expanded by 0.3% in the March quarter, marking a slowdown to 2.5% annual growth, down from 2.6% at the end of 2025, according to the Australian Bureau of Statistics (ABS). The decline stemmed from a net trade deficit—its first since 2017—driven by surging oil costs and heavy investment in data centers, which subtracted 0.8 percentage points from GDP. Government spending fell 0.2% quarterly, the lowest since September 2022, as defense expenditure slowed and state/local spending dropped 0.8% after electricity rebates ended. Household consumption rose only 0.5%, with essential goods spending up 0.8%, reflecting cautious behavior amid higher fuel prices and interest rates. Business investment led growth with a 6% quarterly increase, fueled by a 16.3% surge in machinery and equipment spending—the largest in three decades—due to data center projects in New South Wales and Victoria. ABS head Grace Kim described the growth as modest, citing cyclone disruptions to mining, export activities, and reduced public and private spending. Economic forecasts now predict weaker growth: Commonwealth Bank revised its March quarter GDP outlook to 0.0% or 2.1% annually, while National Australia Bank and Westpac projected 0.3% quarterly growth and 2.4% yearly growth. Despite headwinds, Commonwealth Bank’s Belinda Allen noted the private sector remained resilient, aligning with Australia’s potential growth trajectory.