Australia's economic growth slumped to 0.3 per cent in the March quarter, while productivity fell 0.6 per cent, dealing a significant blow to the Labor government's budget promises. The Australian Bureau of Statistics released the data on Wednesday, showing annual growth lifted 2.5 per cent in March.
Productivity Decline Raises Concerns
Productivity, which measures Australia's GDP against the number of hours worked, fell 0.6 per cent in the March quarter. This comes despite Labor establishing a productivity roundtable after its re-election in 2025 and vowing to boost productivity in the May budget.
"Boosting productivity is central to this budget because it's the best way to lift wages and living standards for Australians," Treasurer Jim Chalmers said on budget night. However, the latest figures show productivity went backwards in the March quarter, following a flat reading in the December quarter.
Treasurer Jim Chalmers acknowledged that productivity was "a bit off" but stressed the measure has lifted throughout the year. "(Productivity is) still up through the year, and the market sector is a bit higher through the year, we know that the quarterly movements can be volatile," Chalmers said. "If you look at the fact that GDP growth is a bit weaker than we expected, we've got those strong hours worked... it's not surprising that the quarterly productivity number fell."
GDP Growth Misses Expectations
Economists polled by Reuters had predicted GDP would lift 0.5 per cent in the March quarter, with annual growth forecast at 2.6 per cent. The actual figures fell short, with quarterly growth at 0.3 per cent and annual growth at 2.5 per cent. The Reserve Bank of Australia had also forecast 2.6 per cent annual growth in May.
Chalmers praised the 0.3 per cent GDP growth as "very solid in the circumstances" of global volatility. He highlighted strong business investment, solid consumption, and ongoing growth in dwelling investment as drivers of economic growth. However, new public final demand made almost no contribution to quarterly GDP growth.
The March quarter figures follow a 0.8 per cent GDP lift in the December quarter.
Trade Deficit Adds to Economic Woes
Other data from the ABS released on Tuesday showed Australia recorded its first trade deficit in more than eight years, as mining exports fell and data centre imports lifted. Exports of goods and services fell 1.2 per cent in the March quarter amid a drop in iron ore and coal exports. The sale of both commodities was disrupted by Tropical Cyclone Koji in North Queensland and Cyclone Mitchell in parts of the Northern Territory and Western Australia.
KPMG chief economist Brendan Rynne expressed alarm at the trade deficit. "Australia has for some time had the rest-of-the-world add to our economic prosperity through purchasing our goods and services, particularly our natural commodities, at increasing rates and often at increasing prices," Mr Rynne said. "Unfortunately, however we aren't in the same position today, with Australia, like most non-major oil producing countries experiencing a negative terms of trade shock due to the ongoing Middle East conflict."
The combination of weak GDP growth, declining productivity, and a trade deficit poses challenges for the Labor government's economic agenda. Improving productivity is seen as crucial to tackling inflation while Australia's GDP recovers from its post-pandemic slump.
