Australia's government spending likely boosted Q3 economic growth

Australia's government spending jumped in the third quarter to add to a long-awaited rebound in business investment, setting the stage for a solid economic performance.

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Data on Tuesday from the Australian Bureau of Statistics showed government spending added 0.4 percentage points to gross domestic product (GDP) in the September quarter, after barely contributing in the previous quarter.

That, coupled with solid business investment, suggested risks to economic growth are to the upside last quarter. The ABS also said on Tuesday net exports would subtract 0.1 percentage point from GDP, in line with expectations.

A Reuters poll showed the economy likely expanded 0.7 per cent in the quarter, the fastest pace since the fourth quarter of 2022. That leaves the annual rate at 2.2%, above the Reserve Bank of Australia’s estimate of trend growth at 2%.

The GDP data is due on Wednesday.

The stronger economic performance is one reason that inflation re-accelerated in the third quarter, which dashed all hopes for any more policy easing from the RBA after three rate cuts this year.

Adam Boyton, head of Australian Economics at ANZ, dropped his call for one more rate cut from the RBA next year given the recent inflation pressures and now sees the central bank on an extended hold.