By Lucinda Jerogin, Associate Economist at CBA
- Australian GDP growth surprised to the upside, rising by 0.6%/qtr in Q2 25 to be 1.8% higher annually.
- The current account deficit narrowed to $13.7bn in Q2 25.
- The July MHSI reinforced our view that the consumer recovery is picking up steam, rising by 0.5%/mth to be 5.1% higher annually.
- National home prices rose by 0.7% in August, the strongest monthly gain since May 2024. Building approvals fell by 8.2% in July, easing the annual growth rate to 6.6%/yr.
- Offshore, US jobs data and the Fed Beige Book presented a weak picture of the US economy.
- The week ahead domestically will see the release of the CBA Household Spending Insights for May. WBC/MI consumer sentiment and the NAB Business Survey are also due. Abroad, the ECB meets.
It felt like Christmas for economists in Australia last week with a jam-packed schedule filled with daily data releases. The Q225 National Accounts saw real GDP growth surprise to the upside rising by 0.6%/qtr, following a weaker 0.3%/qtr lift in Q1. Annual growth accelerated to 1.8%/yr. Temporary weather-related factors weighed on GDP in the March quarter and undoubtedly helped propel growth in Q2. The proximity of ANZAC and Easter day also helped.
Nonetheless, the improvement this quarter was driven by stronger than expected household consumption (+0.9%/qtr), and signalled the economic recovery is underway.
The Q2 GDP print was also a surprise to the RBA, above the 1.6%/yr forecast pencilled in the August SoMP. Governor Michelle Bullock noted on Wednesday night that private sector growth was a bit stronger than expected and that it could mean less rate cuts are required. This hawkish pivot saw markets adjust pricing, with the terminal rate drifting higher to ~ 3.10%.
We continue to expect the RBA to cut the cash rate once more in November. It would take a considerable deterioration in the labour market and an uneasy hand over from the public sector driving growth to the private sector to see additional easing in 2026.
The July MHSI reinforced this view, rising by a solid 0.5%/mth. Annual growth lifted to 5.1%/yr, the highest rate since November 2023. We have noted for several months that the consumer is picking up steam. See here for our consumer deep dive.
The Balance of Payments was released on Tuesday. The current account deficit narrowed marginally to $13.7bn in Q2 25. The quarterly trade surplus narrowed by $1.2bn to $3.1bn as import values lifted and exports held flat. This was the lowest trade surplus since June 2018 and is down from a peak of $41.2bn in Q2 22.
To round out the data last week, building approvals and home prices figures were also released. Building approvals fell by 8.2% in July to 15,769. The annual growth rate eased to 6.6%. However, on a rolling annual 12-month basis, approvals sit at the highest level since January 2023.
According to Cotality, national home prices rose by 0.7% in August, the strongest monthly gain since May 2024. The annual pace of growth lifted to 4.1%. Housing market momentum continues to be fuelled by the RBA’s rate-cutting cycle. Constrained supply, real wages growth and rising confidence are also tailwinds. However, affordability constraints, normalising population growth and a shallow monetary policy easing cycle are expected to keep a lid on growth.
Offshore, US economic data made headlines. JOLTS job openings dropped to the lowest level in 10 months and ADP private payrolls printed weaker than expected, providing further evidence of a slowdown in labour demand. The non-farm payrolls release (10:30pm tonight Sydney time) shapes as a critical print to see if the weaker jobs indicators confirm a slowdown in the US labour market. The Fed’s Beige book noted that most districts recorded little or no economic growth since July. This saw traders fully price a rate cut in September, which our international economics team also believes is a done deal.
In trade news, President Trump requested the US Supreme Court uphold his ‘reciprocal’ tariffs, after a US court affirmed limits to the President’s authority to impose such tariffs. For now, however, the tariffs remain in place.
This week the domestic data flow is considerably lighter. We will release the August CommBank Household Spending Insights report on Thursday. This is the most timely indication of household spending in Australia. Other economic releases this week are ‘soft’ data in the form of the September WBC/MI consumer sentiment survey and the August NAB Business Survey.
Abroad, the ECB meets. Our economics team expects the ECB to leave interest rates unchanged as the Eurozone labour market remains in a good position and inflation is close to target. In economic data, US and Chinese CPI are scheduled.
