UOB’s Lee Sue Ann notes that Australia’s economy ended 2025 with stronger-than-expected GDP growth, underpinned by resilient household spending and ongoing private investment. However, she highlights that elevated inflation and a cautious Reserve Bank of Australia (RBA) stance point to a gradual and uneven outlook. UOB still expects the RBA to wait until the 5 May meeting for the next rate move.

Australian growth strong but policy risks

"The Australian economy strengthened with resilient domestic demand. GDP grew 0.8% q/q in 4Q25 and 2.6% y/y, the fastest pace in nearly three years and above RBA expectations, supported by steady household spending (+0.3% q/q) and a fifth consecutive quarterly rise in private investment (+0.7% q/q)."

"Overall, we expect the Australian economy to remain supported by lingering resilience in household spending and stronger-than-expected private demand carried over from late 2025. That said, elevated inflation and a cautious monetary policy backdrop will shape a gradual and uneven recovery ahead, particularly as higher interest rate expectations begin to restrain activity. These dynamics also unfold against the backdrop of the conflict in the Middle East, which is likely to add further upward pressure on inflation."

"Even before the latest conflict, Australia’s inflation indicators had remained uncomfortably high. Annual CPI held at 3.8% y/y in Jan, unchanged from Dec but above the consensus estimate of 3.7%. Seasonally adjusted headline CPI rose 0.5% m/m in Jan, accelerating from 0.2% m/m in Dec. On an annualized basis, headline inflation stood at 4.0% on a three-month basis and 3.7% on a six-month basis."

"Today’s GDP release is the final major data point before the RBA’s 17 Mar meeting."

"Our base case remains that the RBA will wait for the next quarterly inflation report on 29 Apr before moving at the 5 May meeting, especially as recent data show underlying inflation easing from the 3Q25 spike. While this remains our central view, we acknowledge that the risk of a Mar hike has increased."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)