Tim Hext: Three key takeaways from Australia's

latest national accounts data

Pendal

March 2025

IT'S been five years this week since the Covid chaos emerged.

Aftershocks have kept rolling in since then. But is the Australian economy finally starting to look more "normal"?

The latest set of Australian national accounts (see below) shows Gross Domestic Product growth at 0.6% for the December quarter, suggesting that conditions may, indeed, be moving closer to normal.

Why is that? Below are three takeaways from the latest data. 

1. The consumer is back, but still cautious

The consumer is finally emerging, albeit tentatively, as a positive impact on the economy.

Household consumption grew by 0.4%, contributing 0.2% to the 0.6% overall GDP growth. The contribution had been near zero over the previous year.

Consumers finally had positive real wages growth in 2024 (3.2% wage growth versus 2.5% inflation).

Consumers also spent some of the Stage 3 tax cuts since July. We estimate that around 25% was spent and 75% saved, helping the savings rate to climb to 3.8% from below 3% a year ago.

2. Governments are still a large driver of GDP. Will they pull back further to make room for the consumer?

Government consumption grew by 0.7% in Q4, driven largely by the states. This is at least moderating from near 1.5% growth a quarter earlier.

Government investment also moderated but remains high at 1.8% over the quarter. Overall, the public sector contributed 0.2% to the 0.6% growth.

The government needs to keep moderating spending and investment if the re-emerging consumer is to avoid causing inflationary pressures.

In many areas of the economy, the private and public sectors compete for supply of labour, capital and goods.

3. Private investment remains weak, adding to poor productivity

Private investment rose only by 0.3% in the quarter. Business investment is showing some signs of life, but dwelling investment is falling -- not helped by high rates.

There are, as always, different stories in different sectors. But the overall picture is productivity continuing to flat-line.

GDP per hour worked fell again and is 1.2% lower over the year.

The focus on Australia's poor productivity is becoming a bigger issue.

Everyone has their reasons for it and different lobby groups will shift blame, promoting their own solutions (which normally involve government hand-outs).

However, I did come across the graph below courtesy of Minack Advisors. 

 Put simply, as our capital-to-labour ratio has fallen, so has labour productivity.

Net investment to GDP is around the lows of the past 50 years against labour force growth at the highs (courtesy of immigration and participation).

Overall, the latest today's national accounts report offers some hope of GDP moving back to the 2% to 2.5% the RBA is looking for.

However, unless we can start improving productivity, we will be running to stand still.

Author: Tim Hext

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