Australian’s economy grew by 0.4 per cent in the September quarter, following growth of 0.7 per cent in the June quarter.

It means the economy is now growing at an annual rate of 2.1 per cent, up from 2 per cent in the middle of the year.

Growth in the September quarter was driven by private investment and household consumption, while changes in inventories detracted from growth as inventories were run down to support exports.

Grace Kim, ABS head of national accounts, said GDP per person was flat for the quarter as economic growth matched population growth.

In the Reserve Bank’s most recent forecasts, the RBA was forecasting the economy to be growing at an annual pace of 2 per cent by the end of December.

Investment in data centres drives private investment

Ms Kim said private investment contributed 0.5 percentage points to GDP growth in the September quarter.

That was driven by machinery and equipment investment, which rose 7.6 per cent. The rise aligned with an increase in imports of capital goods.

“The rise in machinery and equipment investment reflects the ongoing expansions of data centres,” Ms Kim said.

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Increased investor demand for housing fed into high real estate turnover and a rise in dwelling construction.

Housing investment contributed 0.2 percentage points to GDP growth in the September quarter.

Public investment grew by 3 per cent in the September quarter, rebounding from a 3.5 per cent fall in the June quarter.

Public corporations drove the rise, with investment growth in renewable energy, water, telecommunications and rail transport projects.

State and local government investment grew 1.4 per cent in the quarter but remained 2.4 per cent lower than a year ago.

What do economists say?

David Bassanese, BetaShares chief economist, says people shouldn’t be distracted by the softer-than-expected 0.4 per cent growth in the September quarter.

He says business investment, dwelling investment, and public demand all rebounded strongly in the quarter, with total domestic demand expanding by a solid 1.2 per cent, more than double June’s 0.5 per cent pace.

So why the soft GDP print?

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He says the principal culprit is the rundown in inventories.

“The lift in demand appears to have outpaced the ability of firms to supply it, forcing businesses to meet customer needs by dipping into stock,” he said.

“From the Reserve Bank’s perspective, this combination of broad-based demand strength and an inability of production to keep up hints at the economy pressing against inflation-prone capacity constraints.

“Accordingly, the RBA will likely take little comfort from the slower headline GDP figure. 

“If anything, the weakness reflects supply limits, not falling demand. And because depleted inventories will need replenishing, the economy enters the December quarter with decent underlying momentum,” he said.

Mr Bassanese said overall, the numbers reinforce the idea that economic demand has not only turned the corner but is broadening — with rising business investment joining ongoing strength in consumption, housing activity, and public spending. 

“The implication: today’s GDP report likely reduces, rather than increases, the RBA’s inclination to cut rates anytime soon,” he said.

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