Q4 GDP Surprise

• Australia finished 2025 with stronger momentum than expected. Q4 GDP rose 0.8% q/q, up from 0.5% in Q3, lifting annual growth to 2.6% and coming in ahead of forecasts.
• For the RBA, the result suggests activity has been running somewhat ahead of the economy’s capacity, though the underlying mix of growth is less clear-cut than the headline number suggests.
• Household consumption was the softer component, rising 0.3% over the quarter. Promotional retail activity and major events provided some support, while weaker spending on electricity and vehicles weighed on the outcome.
• Relative to the weaker conditions seen through 2024, consumption has improved, though the latest figures hint that momentum may be starting to level out. The RBA will continue watching capacity pressures alongside upcoming trimmed mean inflation data.
• Rate markets have adjusted, now pricing a 25% chance of a March hike, a full move by May, and around two hikes through to end-2026.
• Today’s calendar brings January household spending and the January goods trade balance, offering a more timely read on demand early in the year.