The latest GDP figures showing Australia’s economy grew 2.6% last year is good news, but the data also reveals an economy boosted by people chasing bargains and the one-off effect of the Ashes tour.
It has been nearly three years since the economy has grown as fast as it currently is. The Bureau of Statistics estimates that the economy in the December quarter of last year was 2.6% bigger than the December quarter in 2024.
December quarter growth was 0.8%, which if replicated another three times (a big if!) would give us 3.2% annual growth, and would be the sign of a very strong economy.
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So that is nice, but let’s not start singing good times are here again. Of the last eight quarters (two years), only two have grown faster than 0.5%.
And if we take 2025 as a whole and compare it with all of 2024 (rather than just December 2025 with December 2024), Australia’s economy was only 2% bigger and the annual result is pretty meh, when you look back over the past three decades:
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But let’s not be too negative. Let’s find out what caused the nice boost in the last three months of 2025.
The biggest factor was change in inventories. This is a buildup in inventory (ie things that have yet to be sold). That usually is a good sign – businesses expect to sell things, so they buy more of it in the hopes of selling it later. But generally, when inventories rise in one quarter they fall the next (because they sell those things they have in stock).
This leaves us with government spending and household spending as the biggest other drivers of economic growth in December:
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I would expect the Liberal party to seize on this and say it is a sign that government spending is out of control and causing inflationary pressures.
Except if we look at the breakdown of government spending, the biggest increases in December were state and local government spending and investment in defence. I guess the opposition could argue we need less defence investment, but I doubt that will become a talking point:
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Indeed, the contribution of total public demand (all government spending and investment) to GDP growth is now lower than it was during the mining boom:
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But what about households?
Firstly, household disposable income is growing – and we now have on average more income than we did before the pandemic. We have made a good turnaround from the end of the pandemic stimulus and then the subsequent interest rate rises:
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A big reason for the increase has been the cutting of interest rates. This again is good news, but not so great when you realise these figures don’t include the rate rise last month:
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We were also better off because the essential cost of electricity was down due to the various federal and state rebates. As a result, overall Australian households spent 9.4% less on electricity and gas than they did in the September quarter.
There was a nice 1.3% increase in spending on clothing and footwear, and a 2.1% bump in furniture and other household items. Both of these were very much due to the Black Friday sales in Australia becoming a thing.
There was also a 1.4% increase in spending on hotels and restaurants, largely due to the Ashes series and also some big concerts in the December quarter (eg Oasis):
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Will that cause the Reserve Bank to think rates need to rise again to slow spending? Possibly, but last I checked the English are not touring Australia at the moment, and people seeking bargains from Black Friday sales does not really suggest a strong household sector.
And we should remember that on a per capita basis we continue to spend less than the pre-pandemic trend levels:
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These figures are good. GDP of course ignores a great deal – we don’t know who is doing well and who is missing out. But after such a long period of miserable growth, seeing the economy grow closer to 3% than 2% is a nice change.
Now we look to see if the growth is sustained or if we need an Ashes tour and Black Friday sales every three months to keep things looking good.
Greg Jericho is a Guardian columnist and chief economist at the Australia Institute
