"Is Construction Holding Up the Economy? – A Closer Look at Australia’s GDP Slowdown"
Slowdown"
Q: What do the latest GDP figures say about Australia’s economic growth?
A: Australia's GDP grew by only 0.2% in the March quarter of 2025, the weakest quarterly increase in the past year. Over the 12 months to March, the economy expanded by just 1.3%.
Q: What factors contributed to the slowing economic growth?
A: According to Katherine Keenan from the Australian Bureau of Statistics, public spending fell significantly—its largest drop since 2017. Additionally, extreme weather affected mining, tourism, and shipping, dragging down domestic demand and exports.
Q: How did the construction sector perform during this period?
A: Despite the broader economic slowdown, the construction sector grew strongly. Residential building activity rose by 2.6%, non-residential building by 2.1%, and engineering construction by 1.5%, according to Shane Garrett, chief economist at Master Builders Australia.
Q: What drove the strong performance in construction?
A: High demand for home renovations and increased confidence from the Reserve Bank’s interest rate cut were key drivers. However, Garrett warned that sustained momentum requires urgent reform to improve productivity.
Q: What about residential property prices?
A: Residential property prices rose 0.5% in May, driven by low interest rates and a tight housing supply. The strongest growth was seen in Perth, Brisbane, Darwin, and various regional areas.
Q: Are there any concerns within the construction industry despite the growth?
A: Yes. Garrett noted that although construction activity has lifted, the industry is still not building new homes fast enough to meet national targets. He stressed the need to address severe productivity issues and expand the workforce.
Q: What is the economic outlook according to Bendigo Bank?
A: David Robertson, Bendigo Bank’s chief economist, believes the economy still needs support. He predicts two more 0.25% interest rate cuts this year, with a potential third cut next year to bring the cash rate to 3.1%.
Q: How are global factors influencing interest rate decisions?
A: Concerns about global trade tensions, especially between the US and China, are influencing the RBA’s cautious approach. While a larger rate cut was considered, easing tensions led to a standard 0.25% reduction in May.
Q: What is being said about productivity?
A: Productivity fell by 1% over the past year. Robertson emphasized that improving productivity is essential for long-term economic growth and for lifting living standards—something the government must urgently address.