Australia’s economic growth slowed to 2.1 per cent in the year to June, as the impact of three interest rate rises began to weigh on households and businesses while persistent inflation kept the prospect of further monetary tightening alive.
Figures from the Australian Bureau of Statistics showed gross domestic product increased by 0.4 per cent in the June quarter, but annual growth fell from 2.5 per cent in the three months to March. The quarterly result was slightly stronger than economists had expected. ([abc.net.au](https://www.abc.net.au/news/2026-09-02/gdp-june-quarter-2026/107106354?utm_source=openai))
Household consumption rose by 0.4 per cent, although spending remained subdued across most categories. Purchases of vehicles increased sharply, helped by continued demand for electric cars, while higher fuel prices and reduced travel restrained activity. ([miragenews.com](https://www.miragenews.com/australian-economy-grew-0-4-in-june-quarter-1737106/?utm_source=openai))
The figures will be closely watched by the Reserve Bank of Australia as it weighs whether rates need to rise again to bring inflation under control. Inflation stood at 3.5 per cent in July, remaining above the RBA’s 2 to 3 per cent target for a 12th consecutive month.
Commonwealth Bank, National Australia Bank and ANZ are forecasting another increase this year, which would lift the cash rate to 4.6 per cent — its highest level in 15 years. The RBA’s next scheduled decision is due on September 29.
Marc Jocum, senior investment strategist at Global X ETFs, said the stronger-than-expected growth figure could make it harder for the central bank to remain on hold.
“With consensus now shifting towards another rate hike this year, today’s stronger-than-expected growth makes it increasingly difficult for the RBA to justify sitting on its hands,” he said.
Mr Jocum said the central bank faced a difficult choice, with previous rate rises still working through the economy while inflation remained stubbornly high.
“That could make for a tough second half of the year, with the uncomfortable spectre of stagflation looming large,” he said.
Productivity remains a drag on the Australian economy
Productivity continued to weaken, with output per hour worked falling by 0.2 per cent over the financial year and remaining flat in the June quarter. The deterioration risks keeping costs elevated, increasing the likelihood that businesses will pass higher expenses on to customers.
GDP per capita was also unchanged in the quarter, suggesting that the expansion in total output did not translate into an improvement in average economic activity per person.
Business investment was supported by the construction of data centres linked to artificial intelligence and by renewable energy projects. However, private business investment fell by 0.5 per cent in the quarter, after data-centre machinery and equipment spending declined from a substantial rise earlier in the year. Investment remained 10.4 per cent higher than a year earlier. ([miragenews.com](https://www.miragenews.com/australian-economy-grew-0-4-in-june-quarter-1737106/?utm_source=openai))
The Australian Chamber of Commerce and Industry has warned that excessive restrictions on data centres could drive investment overseas without resolving constraints around energy, water or planning.
Households nevertheless increased their saving rate to 6.5 per cent of income in the June quarter, up from 6.4 per cent in March. Wage increases, higher interest income and inflation-linked social security payments helped disposable incomes grow faster than household spending.
