Datacentres are keeping the Australian economy growing: what it means for interest rates

Australia’s economy expanded by 0.3% in the first quarter of 2026, slowing from the 0.9% growth recorded at the end of 2025, according to the Australian Bureau of Statistics. Over the past year, gross domestic product (GDP) rose 2.5%, but GDP per person dropped 0.1%, indicating stagnant living standards despite overall economic growth. The weaker growth reinforces expectations that the Reserve Bank will hold interest rates steady at its June meeting, following recent hikes in February, March, and May. Rising fuel prices—linked to the Middle East conflict—disrupted household spending, with discretionary purchases declining as consumers prioritized essentials. Private investment led growth, driven by a surge in machinery and equipment spending, particularly in data centers across New South Wales and Victoria. Businesses continued investing heavily in digital infrastructure and artificial intelligence despite economic challenges, creating a divide between booming tech sectors and struggling consumer-facing industries. Exports fell, particularly coal and iron ore, due to Cyclone Koji and port disruptions, while imports rose with record purchases of data processing equipment. Government spending also declined as energy bill relief ended, and mining faced its largest industry contraction. Consumer-facing services, including retail and hospitality, remained weak, reflecting subdued discretionary spending. The key concern is whether this slowdown is temporary or signals broader economic weakness, given that GDP per capita has fallen.