Australia’s economy slows as households tighten their belts, while AI investment surges

Australia’s economy slowed to a 0.3% growth in the first quarter of 2026, down from 0.9% in the previous quarter.
Overall GDP grew by 2.5% over the year to March, but GDP per person fell by 0.1%, indicating that Australians may not have felt better off despite the growth.
The weaker growth is likely to support the Reserve Bank’s decision to maintain interest rates in June, following increases in February, March, and May.
Higher fuel prices due to the Middle East conflict increased costs for households and affected spending patterns, leading to a rise in essential spending and a decline in discretionary spending.
Private investment, especially in machinery, equipment, data centres, and AI, showed strong growth.
Net trade acted as a drag on growth, with exports falling (especially coal and iron ore) and imports rising (notably for data processing equipment).
Indicators of a potential per capita recession emerge as GDP per person continues to decline, and household savings are depleting.
The Reserve Bank’s decision in June is challenging due to the need to manage inflation while supporting economic momentum, with recent data showing the impact of higher interest rates and fuel costs on households.