Australia’s economy delivered a stronger-than-expected outcome in the June quarter, expanding 0.6 per cent, above market forecasts of 0.5 per cent. On an annual basis, growth reached 1.8 per cent, the fastest pace in nearly two years, though still below the 2.5 per cent long-run trend. The key driver was household consumption, which grew 0.9 per cent as consumers dipped further into savings, with the savings ratio falling from 5.2 per cent to 4.2 per cent. While the headline is encouraging, the detail is less convincing. Per-capita GDP remains weak, underpinned more by population growth than productivity, and business investment was subdued. The topline result is solid, but beneath the surface, the structure of growth remains fragile.
For markets, the GDP release has reset the conversation around interest rates. Investors had positioned for further RBA easing, but the strength of consumption has dampened those expectations. ANZ economists argue that the cash rate is now broadly neutral, reducing the case for additional cuts. Meanwhile, the market is reassessing the probability of a November rate reduction, which still sits near 80 per cent but is no longer assured. The reaction was swift—bond yields climbed and the ASX shed more than 1.8 per cent, wiping around $57 billion in market value. Some, including NAB’s chief economist, continue to argue for a 50-basis-point cut, citing disinflationary forces and external risks, but the RBA remains cautious. Productivity weakness, in particular, is cited by Governor Bullock as a factor complicating any aggressive easing cycle.
The implications for credit markets are clear. Stronger consumer spending suggests near-term revenue resilience in discretionary sectors, but muted investment and stagnant productivity temper the medium-term outlook. Rate expectations remain tilted towards a “higher for longer” setting, with floating rate exposures likely to face sustained pressure. Policy is now highly data-dependent, with September inflation and the NAB business survey shaping the next leg of market pricing.
Looking ahead, the September RBA meeting will be pivotal in signalling whether the board sees growth momentum as durable enough to hold policy steady. Household spending indicators and business sentiment data will be crucial in determining whether this quarter’s performance extends beyond consumers to firms. Inflation prints will continue to define the speed of any future easing.
In short, the economy has produced a welcome surprise in growth, but it comes with important caveats. Households are carrying the momentum, but with investment sluggish and productivity failing to lift, the recovery is not yet self-sustaining. For private credit investors, the message is to allocate with resilience in mind. The latest data confirms that while rate cuts remain possible, they will not be delivered with the urgency markets had assumed. This is an economy in a grind rather than a glide, and positioning portfolios to withstand a drawn-out cycle remains the prudent path.