Australia Economy Today: Q3 GDP Data, Inflation Shock and Interest Rate Jitters

Australia’s economy is back in the spotlight today after fresh national accounts and inflation figures painted a picture of solid headline growth, stubborn price pressures and still‑squeezed living standards.

On 3 December 2025, the Australian Bureau of Statistics (ABS) reported that gross domestic product (GDP) grew 0.4% in the September quarter and 2.1% over the year, slightly below market expectations but the fastest annual pace in two years. ^[1]

At the same time, inflation is running at 3.8% – above the Reserve Bank of Australia’s (RBA) 2–3% target – leaving the central bank facing a difficult choice as its next interest rate meeting approaches on 8–9 December. ^[2]

Here’s what’s moving the Australian economy today, 3 December 2025, and why it matters for households, markets and policymakers.

GDP: Fastest annual growth in two years, but a softer quarter

According to the ABS, real GDP expanded 0.4% in the September quarter 2025, following 0.7% growth in June. On an annual basis, growth accelerated to 2.1%, up from 2.0% in the June quarter and a big improvement on the sub‑1% pace seen a year ago. ^[3]

Economists had expected a stronger quarterly print of around 0.7%, so today’s number is being read as a “solid but slightly disappointing” result:

Reuters notes that the annual growth rate is now above the RBA’s estimate of trend growth (2%), but the quarterly miss has complicated the outlook for rates. ^[4]
Several market commentators describe the report as “hot under the hood” – domestic demand is strong even though the headline GDP figure looks modest. ^[5]

In other words, the economy is not stalling – but it is growing in a way that risks reigniting inflation.

What’s driving growth? Data centres, housing and public investment

The national accounts show that domestic final demand – spending by households, businesses and governments – did most of the heavy lifting in Q3:

Private investment contributed 0.5 percentage points to quarterly GDP, driven by a 7.6% surge in machinery and equipment investment. ^[6]
The ABS explicitly links this to an ongoing boom in data centres, as firms ramp up capacity for artificial intelligence and cloud computing. ^[7]
Housing investment added 0.2 percentage points, supported by higher dwelling construction and strong real estate turnover, particularly from investors. ^[8]
Public investment jumped 3.0% in the quarter, with spending concentrated in renewable energy, water, telecommunications and rail transport projects. ^[9]

On the consumer side:

Household spending increased 0.5% in the quarter, but the composition tells the story of a cost‑of‑living squeeze.
Essential spending – on banking and superannuation services, electricity and health – rose 1.0%, while discretionary spending fell 0.2% as households pulled back on non‑essentials after a strong June quarter. ^[10]

Trade, by contrast, subtracted from growth:

Net trade knocked 0.1 percentage points off GDP, with imports up 1.5% and exports up 1.0%. Imports were led by fuel and capital goods (including computer equipment for data centres). ^[11]
Inventories were run down by about $1.9 billion, detracting a hefty 0.5 percentage points from growth as mining companies shipped product from stockpiles while maintenance held back production. ^[12]

Taken together, the data suggests an economy being powered by big capital spending and public works, rather than a free‑spending consumer.

Terms of trade and record capital inflows

The ABS’s balance of payments release – a precursor to today’s GDP figures – showed that Australia’s terms of trade (the ratio of export prices to import prices) rose 0.3% in the September quarter, the first increase this year. ^[13]

More striking was the record financial account surplus:

The financial account recorded a surplus of $31.2 billion, the largest on record.
This was driven by strong foreign demand for Australian government bonds and other debt securities, with overseas investors buying $66.6 billion of Australian debt, alongside continued appetite for Australian equities. ^[14]

While this foreign capital supports the currency and helps finance investment, it also pushed net foreign debt up to about $1.43 trillion. ^[15]

Living standards: Per capita GDP stuck in “recession‑ish” territory

Behind the respectable 2.1% headline growth, living standards remain under pressure:

The ABS confirms that GDP per capita was flat (0.0%) in the September quarter and just 0.4% higher than a year ago. ^[16]
MacroBusiness calculates that real GDP per capita actually fell by about 0.01% in Q3 and notes that per‑capita output has declined in 10 of the past 13 quarters, describing Australia as “per capita recession bound.” ^[17]

Today’s data has also been seized on by critics of high migration:

A new analysis by the Institute of Public Affairs argues that “mass migration” is shrinking the economic pie per person, noting the tiny fall in per capita GDP and claiming the government’s migration program is making Australians poorer. ^[18]

While that interpretation is contested, the numbers do support a simple point: aggregate GDP is growing faster than the average Australian’s living standard.

Inflation at 3.8% keeps the RBA on edge

If the growth figures were a mixed bag, the inflation numbers are more clearly uncomfortable for the RBA.

Fresh ABS data released last week showed:

The Consumer Price Index (CPI) rose 3.8% in the year to October 2025, up from 3.6% in September. ^[19]
The trimmed mean – the RBA’s preferred core measure – climbed to about 3.3%, pushing further above the 2–3% target band. ^[20]

Much of the jump reflects higher electricity prices as government energy rebates roll off, as well as persistent food inflation – particularly in meat and dairy – according to both ABS and independent analysis. ^[21]

Prior to today’s GDP release, markets had already slashed expectations of further rate cuts in 2026 and even started to price in a modest chance of a hike if inflation continues to drift higher. ^[22]

RBA: Cash rate on hold at 3.60%, but “cuts off the table”

At its 4 November 2025 meeting, the RBA:

Kept the cash rate on hold at 3.60%, where it has been since August. ^[23]
Warned that stronger‑than‑expected inflation and firmer domestic demand meant it was too early to talk about further easing. ^[24]

Governor Michele Bullock told parliament this week that the economy is likely operating near its “speed limit”, with a tight labour market and rising inflation leaving little room for overheating. ^[25]

Today’s GDP report reinforces that dilemma:

Reuters notes that final domestic demand added 1.1 percentage points to growth, underlining strong underlying momentum even as the headline number undershoots. ^[26]
Citi and other analysts quoted in that report argue there is “little dovish evidence” in the data, and a future rate hike “cannot be ruled out” if inflation does not recede. ^[27]

Consumer‑facing media are already framing the message bluntly: rate cuts are “off the table”, and the pick‑up in activity is likely to “amplify concerns that Australia’s economy is at capacity”, as 7NEWS put it today. ^[28]

Labour market vs inflation: An uncertain 2026 outlook

The jobs side of the economy is showing a very different mood:

A note from Janus Henderson, highlighted by Financial Newswire today, says inflation is rising even as the labour market softens, with underemployment creeping higher and business sentiment more cautious. ^[29]
The piece argues that in the face of these “conflicting risks”, keeping rates on hold in the near term is the “prudent move”, but warns that policy mistakes either way could be costly. ^[30]

Put simply, the RBA is stuck between a rock (inflation) and a squishy place (a cooling jobs market).

Markets today: ASX edges higher, bonds and the dollar react

Financial markets digested today’s data with measured optimism rather than euphoria.

On equities:

The S&P/ASX 200 closed up about 0.18% at 8,595.2, with the broader All Ordinaries gaining 0.19% to 8,894.2. TechStock²
A live market wrap notes that investors initially cheered the “better‑than‑feared” GDP numbers, but enthusiasm cooled as bond yields ticked higher and the implications for future rate hikes sunk in. TechStock²+1

On currencies and bonds:

Reuters reports that the Australian dollar firmed to around US$0.658 after the GDP release, while three‑year government bond futures fell to their lowest level since January, pushing yields higher. ^[31]
Forex commentary describes the GDP print as “disappointing at 0.4% vs 0.7% expected”, but notes that moves in the Aussie were modest, with global US dollar weakness doing much of the work. ^[32]

The takeaway for markets: the economy is strong enough to keep rates high, but not so strong that a near‑term hike is guaranteed.

Sector stories: Defence, tourism and the AI dividend

Beyond the macro headlines, several sector‑specific stories also broke today that could shape Australia’s medium‑term growth.

1. Defence procurement as a growth lever

New modelling released in Canberra today suggests that shifting more defence procurement to Australian‑owned prime contractors could:

Inject “billions annually” into GDP, and
Support tens of thousands of additional jobs, while boosting sovereign capability. ^[33]

The report, prepared by independent advisory firm DeltaPearl Partners, will feed into debates over how to use defence spending to maximise local economic benefits while meeting strategic objectives.

2. Tourism boost from Emirates’ A350 into Adelaide

On the tourism front, Emirates’ decision to deploy its new Airbus A350‑900ULR on the Dubai–Adelaide route is being billed as a “game‑changer” for South Australia:

Daily Emirates flights to Adelaide are already estimated to contribute over $62 million a year to the state’s economy via tourism and trade.
The upgraded aircraft and premium economy cabin are expected to further lift visitor numbers and spending. ^[34]

The move underscores how aviation capacity and connectivity remain crucial for Australia’s post‑pandemic services exports.

3. The AI and data centre boom

Today’s GDP release and multiple analyses highlight the data centre and AI build‑out as one of the clearest growth engines:

The ABS links the 7.6% jump in machinery and equipment investment to ongoing expansions of data centres, supported by rising demand for AI and cloud services. ^[35]
Banks and market strategists now commonly refer to this as a structural driver that is offsetting weaker household discretionary spending in the near term. ^[36]

If sustained, this investment wave could improve productivity – but in the short run it also adds to demand in an economy already close to capacity.

So, is Australia’s economy in good shape?

Today’s data doesn’t offer a neat answer – it offers a two‑track story:

On the surface:
- GDP is growing at its fastest annual rate in two years.
- Investment is roaring back, particularly in data centres, housing and public infrastructure.
- The terms of trade are improving again, and foreign investors are snapping up Australian assets. ^[37]
Under the surface:
- Per capita GDP is flat, and many households are cutting back on non‑essentials. ^[38]
- Inflation at 3.8% is eroding real incomes and keeping the RBA on red alert. ^[39]
- The labour market is cooling just as policy must stay tight to tame prices. ^[40]