Today we received the Q1 2025 GDP report for Australia. The data came in slightly below market expectations, both on a quarterly and annual basis. In response, we observed a slight decline in the AUD against the dollar, but the rate quickly returned to pre-release levels.
GDP Report
Australia’s economy grew by only 0.2% in the first quarter of 2025, missing the 0.4% forecast and slowing from 0.6% in the previous quarter. The annual growth rate held at 1.3%, significantly below the Reserve Bank of Australia’s (RBA) earlier projection of 1.8%. The slowdown was driven by a sharp drop in public investment—the largest drag since 2017—and weather disruptions that hit key export sectors such as mining and tourism. Net trade and government spending each subtracted 0.1 percentage point from GDP, while the only positive contribution came from private demand (+0.3 pp), though weaker than before.
The RBA acknowledged the data was weak, lowering its growth forecasts and pointing to uncertainty in global trade—especially renewed tensions between the U.S. and China—as a key risk. While the central bank still expects a gradual acceleration to 2.1% growth by year-end, this would require a stronger rebound in the coming quarters. Domestic economic activity, including consumption and business investment, remains subdued due to high interest rates and low confidence.
AUDUSD
The Australian dollar (AUD) weakened immediately after the GDP release, but quickly stabilized, remaining in a narrow range. Investors interpret the weak data as confirming the RBA’s dovish stance, which may pave the way for further interest rate cuts later in 2025 if economic conditions fail to improve.
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