Weak growth on paper, stronger reality underneath
Australia’s latest GDP figures initially disappointed investors, showing slower growth than many had expected in the third quarter. On the surface, the economy appears to be losing momentum under the weight of higher interest rates and a global slowdown. But a closer look at the data suggests domestic demand is far more resilient than the headline number implies. Strong household and government spending, along with rising business investment, are masking a shift in the way growth is being generated.

Net exports dragged on overall GDP as commodity shipments fell and imports picked up, making the economy look weaker than it feels on the ground. Economists who dug into the numbers say private demand is expanding at a pace that would normally ring alarm bells at the central bank. Consumption is being supported by a still-tight labour market, population growth through migration and rising wages in key sectors. At the same time, public infrastructure projects and spending on defence and energy are adding extra fuel.

This combination puts the Reserve Bank of Australia in an uncomfortable position. Policymakers have been trying to cool price pressures without tipping the country into recession, moving gradually after an earlier series of rate hikes. The latest data suggest inflationary forces could prove stickier than hoped if domestic demand stays strong. That raises the prospect that rates will have to stay higher for longer, or even rise again, despite political pressure from households already feeling mortgage pain.

For workers, the picture is mixed. Job creation remains solid, and many employees are still able to negotiate pay rises or switch positions to improve their income. Yet essential costs—from rent and mortgages to energy bills and groceries—are eating into any gains. Consumer surveys show confidence is fragile, with many Australians saying they are cutting back on discretionary spending even as aggregate consumption holds up. The risk is that a sudden shift in sentiment could cause households to slam on the brakes, amplifying any external shock.

Businesses, meanwhile, are navigating a split-screen economy. Exporters tied to commodities or China’s slowdown are cautious, delaying some plans and trimming inventories. Companies focused on services, construction and domestic logistics are seeing firmer demand, although they worry about labour shortages and wage costs. Some firms are also reassessing investment decisions as they weigh higher financing costs against the need to upgrade equipment and digital systems.

The government has welcomed the signs of resilience but is under pressure to do more for households left behind. Debate is intensifying over targeted support versus broader tax relief, and over whether fiscal policy is working against, or inadvertently amplifying, the central bank’s efforts. Economists warn that generous spending in the wrong areas could push up demand further and complicate the inflation fight. At the same time, underinvestment in housing and critical infrastructure risks locking in bottlenecks that keep prices elevated.

International investors are watching closely because Australia often serves as a bellwether for other advanced, commodity-rich economies. A scenario in which headline growth looks modest but underlying demand runs hot could soon confront policymakers elsewhere. For now, the message from the data is that Australia is not sliding quietly into slowdown. Instead, it is wrestling with an economy that is still running faster under the hood than many had assumed—and that makes the path back to low, stable inflation harder to navigate.