Growth masked underlying weakness
Australia's economy grew 2.1% over the year to the June quarter 2026 (seasonally adjusted), marginally outperforming forecasts. However, the result masked underlying weaknesses, with poor productivity growth and flat GDP per capita pointing to a fragile growth outlook.
The June quarter was the first to fully capture the economic effects of the conflict in the Middle East. Expectations of prolonged elevated oil prices dampened sentiment among households and businesses, weighing on confidence.
The stronger-than-expected GDP result could also increase pressure on the RBA to tighten monetary policy further as it continues its fight against inflation.
Consumption carried economic growth
Household consumption was the primary driver of growth in the June quarter, supported by easing inflation and resilient labour market conditions.
In contrast, business investment was largely unchanged, reflecting ongoing caution among firms amid elevated interest rate, weak productivity growth and uncertain economic conditions.
Net trade made a modest positive contribution, with stronger mining and LNG exports partly offsetting a surge in fuel imports as higher global energy prices increased Australia's import bill.
Datacentres power industry growth
The datacentre activities continue to drive growth across key parts of the economy. ICT, professional services, financial services and construction were the strongest performing industries, each expanding by more than 4% annually, compared with an industry-wide average of 2.3%.
Outside these sectors, business conditions were more challenging. Retail and food services were held back by weak consumer spending, while manufacturing, transport and utilities were affected by higher fuel costs stemming from the global energy crisis.
This reflects a widening gap between datacentre-related industries and the rest of the economy.
Imports offset datacentre capex gains
Capital expenditure in the ICT industry fell 30% in the June quarter as the pace of datacentre construction moderated, reversing some of the strong investment growth seen over the past year.
However, the decline in investment was largely offset by a 26% fall in datacentre-related equipment imports.
This reflects a key feature of the datacentres expansion while it generates significant capital spending and supports growth in ICT and construction, much of the required equipment is sourced from overseas.
As a result, the boost to GDP from higher investment is often partly offset by increased imports, leaving only a modest net impact on economic growth.
Productivity remained stagnant
Australian labour productivity was flat in the June quarter and 0.2% lower than a year earlier, leaving the productivity index at 99.7.
The productivity has largely stagnated since the post pandemic and remains significantly below its pre-pandemic trend, which would have lifted the index to around 108.4 by 2026.
Despite strong investment in datacentres and rapid advances in AI, these developments have yet to deliver broader productivity gains. Realising their potential will require supportive policy settings in planning and energy, alongside wider and more effective adoption of AI technologies across the economy.
Energy crisis drove import bill higher
Australian fuel and lubricant imports rose sharply in the June quarter 2026, increasing by 62% to around $23.4 billion, the highest level shown in the series.
This followed imports of $14.4 billion in the March quarter and far exceeded the typical quarterly import value of around $14 billion recorded over 2023-2025.
The surge reflects the impact of the global energy crisis, which significantly increased Australia’s fuel import costs and added pressure to energy-dependent industries.
