Economic activity subdued

Economic activity remained subdued in Q4 2024, with GDP growing just 0.58% for the quarter, bringing annual growth to 1.27%. That’s well below the long-term average of 3.31% that Australians have grown used to. But beneath the headline figure, the mix of growth improved. Public demand continues to drive GDP, with a slight uptick in private demand – led by a lift in household spending.

Inflation held steady, rising just over 0.22% over Q4 – mirroring Q3 figures. This stability gave the Reserve Bank of Australia (RBA) enough confidence to reduce the cash rate in February, marking its first cut in five years. While this rate cut was largely expected, the path forward is less certain.

With global tariff tensions heating up, the RBA will be watching inflation closely. A tariff is simply an increase to the price so a spike could delay further cuts in the first half of 2025. On the flip side, if households and businesses pull back, deflationary pressure could emerge – prompting the RBA to make multiple rate cuts sooner to stimulate growth which is already below trend.