Australia’s Gross Domestic Product (GDP) for Q4 2025 expanded by 0.40% quarter-on-quarter, according to the latest release from the Sigmanomics database[1]. This figure undershot the market consensus of 0.70% and represents a slowdown from the 0.60% growth recorded in Q3 2025. Over the past year, quarterly GDP growth has averaged 0.45%, indicating a cooling momentum after a robust start to 2025.

Drivers this month

• Services sector growth remained steady, contributing approximately 0.15 percentage points (pp).
• Construction activity added 0.10 pp, supported by ongoing infrastructure projects.
• Mining output contracted slightly, subtracting 0.05 pp amid weaker commodity prices.
• Household consumption growth slowed, contributing only 0.08 pp versus 0.20 pp in Q3.

Policy pulse

The RBA’s tightening cycle, with the cash rate at 4.35%, is beginning to temper domestic demand. Inflation remains above the 2–3% target band, but slowing GDP growth signals a potential easing of price pressures ahead.

Market lens

Immediate reaction: The Australian dollar (AUD/USD) declined 0.30% post-release, while 2-year government bond yields fell 5 basis points, reflecting cautious investor sentiment.

Core macroeconomic indicators provide context for the GDP slowdown. Employment growth moderated to 0.20% MoM in November 2025, down from 0.40% in October. The unemployment rate held steady at 3.80%, near historic lows. Inflation, measured by the Consumer Price Index (CPI), rose 0.50% MoM in November, maintaining an annual rate of 4.10%, above the RBA’s comfort zone.

Monetary policy & financial conditions

The RBA’s recent interest rate hikes aim to cool inflation without triggering recession. Financial conditions tightened, with mortgage rates rising to 6.20% on average, dampening housing demand. Credit growth slowed to 3.50% YoY, the lowest since 2022.

Fiscal policy & government budget

The federal government’s budget remains expansionary, with a 2025–26 deficit forecast of 1.80% of GDP. Targeted infrastructure spending and tax incentives aim to support growth, but fiscal drag is expected as stimulus measures phase out in 2026.

Drivers this month

• Services sector: 0.15 pp, stable but below prior quarters.
• Construction: 0.10 pp, buoyed by government projects.
• Mining: -0.05 pp, reflecting commodity price softness.
• Household consumption: 0.08 pp, slowed by higher interest rates.

Policy pulse

The RBA’s tightening is evident in the slowing consumption and credit data. Inflation remains sticky, but the growth slowdown may reduce pressure on further rate hikes.

Market lens

Immediate reaction: AUD/USD dropped 0.30%, 2-year yields declined by 5 basis points, and the ASX 200 index fell 0.40% within the first hour, signaling investor caution.

Looking ahead, Australia’s economic trajectory faces multiple scenarios shaped by domestic and global factors. The baseline forecast projects GDP growth averaging 0.50% QoQ in 2026, supported by fiscal stimulus and a gradual easing of monetary policy.

Bullish scenario (20% probability)

• Global commodity prices rebound, boosting mining exports.
• Inflation eases faster than expected, allowing RBA to pause rate hikes.
• Household consumption recovers with improved wage growth.

Base scenario (55% probability)

• Moderate growth of 0.40–0.60% QoQ continues.
• Inflation remains above target but gradually declines.
• Fiscal policy offsets some monetary tightening effects.

Bearish scenario (25% probability)

• Global trade tensions escalate, disrupting exports.
• Inflation remains stubborn, forcing further rate hikes.
• Consumer confidence weakens, slowing consumption and investment.

External shocks, including geopolitical risks in the Indo-Pacific region and supply chain disruptions, remain key downside risks. Financial markets will closely monitor inflation data and RBA communications for clues on policy direction.

Australia’s Q4 2025 GDP growth of 0.40% signals a moderation in economic momentum amid tightening monetary policy and external uncertainties. While core sectors show resilience, the slowdown highlights the challenges of balancing inflation control with growth support. The RBA’s next moves will be critical in shaping the economic outlook, alongside fiscal policy and global developments.

Investors and policymakers should prepare for a period of cautious growth, with upside potential tied to commodity markets and fiscal stimulus, and downside risks from inflation persistence and geopolitical tensions.

Incorporating data from the Sigmanomics database ensures a comprehensive and timely view of Australia’s economic pulse, aiding informed decision-making in an evolving landscape.

Relevant tradable symbols linked to Australia’s GDP dynamics include: ASX200 (equity market sensitivity), AUDUSD (currency reaction to growth and policy), BTCUSD (risk sentiment proxy), BHP (mining sector exposure), and AUDJPY (cross-currency trade and risk gauge).