As a recession looms, people have cut back on spending big time.
On a quarterly basis, the Australian economy grew by just 0.3 per cent – much weaker than the 0.9 per cent recorded in the previous quarter.
GDP per person – our total GDP divided by our population – actually fell 0.1% in the quarter. This shows Australians were not feeling better off, despite the economy still growing.
Australia has technically avoided a headline recession (two consecutive quarters of negative GDP growth), but many households and businesses are experiencing a “shadow recession”.
Stagnant productivity, high interest rates, and stubborn inflation have severely squeezed discretionary spending, causing widespread financial strain and an increase in insolvencies.
The Reserve Bank of Australia is trying to confront rising inflation and unemployment and downgraded growth forecasts. There’s not much it can do.
Data from the Australian Financial Security Authority (AFSA) highlights mounting financial distress, with both personal and business insolvencies climbing significantly.
Rising interest rates and significantly higher fuel costs played a major part in keeping wallets and purses closed in the last quarter.
Spending on electricity, gas and other fuels rose sharply after the energy rebates ended.
Westpac said the Australia’s economy was already slowing before the conflict in the Middle East.
The bad news is headwinds from the conflict will be more fully reflected in the second quarter of 2026.
Last month, RBA governor Michele Bullock warned that Australia was in for a ‘very rough time’ in coming months as inflation rises, the economy slows and unemployment picks up.
In the RBA’s latest statement on monetary policy, RBA staff forecast Australia’s annual rate of economic growth to slow to just 1.3 per cent by the end of this year.
Sectors reliant on non-essential spending—such as retail, hospitality, and construction—are facing immense pressure.
Per capita household spending – which is real cash – will be flat in 2026, while softer hiring will push unemployment close to 5 per cent through 2027.
Defence investment rose 6.8 per cent reflecting increased imports of defence weapons platforms.
Construction contributed to the rise with higher activity across residential construction services, apartment projects and data centre fit-outs.
The key question is whether this is just a temporary slowdown, or the start of a more worrying loss of momentum.