Household spending pushes up economic growth on back of rate cuts

Aussie households have been splashing the cash on the back of recent rate cuts, almost outstripping the government as the major growth driver in the economy.

Latest data from the Australian Bureau of Statistics (ABS) shows the nation’s economy is now well-positioned for a rebound after rising 0.6% in the June quarter.

The growth was slightly ahead of economists’ expectations, with household and government spending leading the contributors.

While the quarterly figures look positive, 2024-25 was still the weakest financial year for growth in Australia since the early 1990s, excluding 2019-20.

The annual growth of 1.8% was slightly better than the 1.6% anticipated by the Reserve Bank.

Household spending on the rise

Household spending jumped 0.9% in the quarter, while gross domestic product per capita increased 0.2% following a decrease in March.

It comes after households received cash rate cuts in February and May – the first in more than four years.

This was felt in net national disposable income, which lifted 0.1% per person, while household spending became the main contributor to economic growth.

Wants were higher than needs for households over the quarter, with discretionary spending up 1.4% against an 0.5% increase for essential spending.

ABS head of national accounts Tom Lay said end of financial year sales, new product releases and the unusual proximity of the Easter and ANZAC Day public holidays were key factors for discretionary spending.

Consumers also spent on transport services (+1.7%), hotels, cafes and restaurants (0.7%) in the quarter.

The household savings ratio eased slightly to 4.2% but was revised up to 5.2% for the March quarter.

Cyclone impact

March GDP figures were dampened significantly by Cyclone Alfred, which caused widespread destruction across south east Queensland and northern New South Wales.

In the June quarter however, those impacted were major drivers for the economy, with both states experiencing higher sales as goods and items were replaced.

The growth in health (+1.9%) in the quarter was a larger contributor to essential spending due to use of medical services linked to flu season.

Electricity and gas (+2.9%) also rose as electricity rebates trailed off, notably in Queensland and Western Australia.

Government spending

Government spending increased 1% in the quarter and was largely drive by increased defence spending (+3.2%).

There was also a 2.4% increase on social benefits to households, which includes the cost of bulk bulling and Medicare benefits which align to the quarter covering flu season.

The cost of running the 2025 Federal Election also put up the government’s costs between April and June.

Treasurer Jim Chalmers was positive on the results, saying the economy is “gathering momentum”.

“This was a welcome and substantial pick-up in growth,” he said. “It is the equal fastest quarterly growth rate in almost three years and the fastest annual growth rate in almost two years.”

Dr Chalmers said Australia’s economy is in an “enviable” position despite global political unrest.

“Last financial year, we achieved what no other major advanced economy could – continuous economic growth.

“Australia now has the equal fasts annual growth when compared to the major advanced economies.”

Despite this, Westpac warned there is little guarantee the pick-up in consumption will continue.

“Some of the strong quarterly gains looks to be consumers responding to discounting and taking longer than usual holidays around the Easter and ANZAC day public holiday period,” senior economist Pat Bustamante said.

“The Westpac–DataX Card Tracker Index shows a slowdown since mid-year, suggesting some of the lift in momentum may have faded.”

This article first appeared on Mortgage Choice and has been republished with permission.

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