Economy softens pre-energy crisis
Australian real GDP growth slowed to 0.3% in the March quarter 2026, reversing a recovery trend across 2025.
The first quarter 2026 data largely did not incorporate the effects of the global energy crisis, which have begun to impact economic activity from the second quarter.
Net exports dragged on growth with falling exports and rising imports. Investment in data centres remained the strongest area of activity.
The RBA’s earlier rate hikes were already starting to dampen household spending and broader economic momentum.
Transport costs drove spending drop
According to ABS data, household spending fell 1.1 % in April 2026, seasonally adjusted. Annual household spending rose by 4.9% compared with April 2025, a slowdown from the 6.2% increase recorded in March.
Transport costs, which fell by 4.7%, were the primary factor behind the 1.1% decline in household spending in April. This decrease reflected the broad impacts of, and responses to, the conflict in the Middle East. Air travel contributed most to the drop, as households cut back on trips amid heightened uncertainty and rising airfares.
While fuel costs remained higher than pre-conflict levels, they eased compared with March. The federal government’s decision to halve the fuel excise from 1 April helped cushion the impact.
Steady labour market in March
Labour market remained stable in the March quarter, with modest increases in both filled jobs and overall employment, while job vacancies recorded a notable rise of 5.2%.
The total number of jobs increased by 0.7% to reach 16.5 million in March quarter of 2026.
The employment in the public sector rose slightly by 0.1%, while private sector employment saw an increase of 0.7%. The industries with the highest employment levels were health care and social assistance, retail trade, professional services and construction.
Data centres obscured economic fragility
There has been an extraordinary boom in data centre driven investment, with ICT capital expenditure increasing four-fold since 2024. While there has been some uplift in building activity, growth has been primarily driven by equipment and fit-out.
Approximately 85% of total investment growth over the past year has been attributable to data centres.
However, the broader economic benefits are more muted to high reliance on imported equipment for these builds. In the near term, key equipment shortages, particularly GPUs could be the primary bottleneck.
Productivity collapsed in March quarter
Productivity, measured as output per hour worked, plunged by 0.6 % in the March 2026 following no growth in the previous quarter. This marks the weakest quarterly result since mid-2024.
As a result, annual productivity growth has declined to 0.3% compared with 1% in the previous quarter.
The prolonged stagnation in productivity signals a concerning drag on economic performance and future growth prospects.
Pre‑shock gross operating profit
Gross operating profits for non‑mining industries increased by 5.6% over the year to the March quarter 2026.
After experiencing considerable volatility during the pandemic period, profit growth has moderated since 2022.
While most industries recorded gains, several sectors saw declines, including financial services (-10.1%), administrative services (-6.6%), manufacturing (-5.5%) and mining (-0.3%).
These results cover Q1 2026 and did not yet reflect the actual impacts from the Middle East crisis that may affect in the coming quarters.
