The March quarter national accounts were a soft print, but far from panic stations. Growth slowed a bit, but the return to negative productivity is the real worry.
For the March Quarter 2026:
📈 GDP grew 0.3% QoQ (⬇️ 0.6%)
📈 GDP was up 2.5% YoY (↔️)
📈 GDP per capita fell 0.1% QoQ (⬇️ 0.6%)
📈 Productivity (GDP per hour worked) fell 0.6% QoQ (⬇️ 0.6%)
📈 Real unit labour costs rose 0.5% QoQ (⬆️ 1.2%)
📈 Household saving ratio fell to 6.2% (⬇️ 0.8%)
📈 Net trade detracted 0.8ppt from growth (⬇️ from nil)
While headline growth stayed positive it was propped up by a surge in private investment. Business investment in machinery and equipment jumped 16.3%, almost entirely driven by data center construction. All most all of this new equipment was imported, so the same spending that propped up the growth number also blew out imports and dragged net trade down, tipping Australia into its first trade deficit since 2017. Strip out the data centre spending and this was a really weak quarter. Government spending added nothing, and household consumption was soft.
The productivity number is the bigger concern. Output per hour worked went backwards 0.6% and is barely positive over the year. At the same time, real unit labour costs ticked back up. In plain terms, we are paying more for each unit of output, which is exactly the dynamic that keeps domestic inflation sticky. This has been a long running issue for the Australia economy and it's a problem that needs to be addressed (clearly the rapid rollout of AI isn't helping). The only way to sustainably grow real incomes and standards of living is to improve productivity.
The other worrying things with a soft March quarter print, is that it is backward looking. It only catches the very start of the impacts of the Hormuz closure. The really rough prints are probably still ahead of us.