Australia's economy slumps in the wake of interest rate rises, Budget and fuel crisis

Published: 03:18, 3 June 2026 | Updated: 03:25, 3 June 2026 Australia's economic growth rate slowed to 0.3 per cent in the first three months of the year as the effects of interest rate rises and the Iran war started to be felt. Growth in gross domestic product was down from the rapid 0.9 per cent growth recorded in the December quarter, Australian Bureau of Statistics data showed on Wednesday. The result was largely in line with the consensus of forecasters. Annual GDP growth was 2.5 per cent, below Reserve Bank's May forecast of 2.6 per cent. 'Economic growth slowed in the March quarter, with modest household and public sector expenditure as well as cyclone disruptions to mining and export activities,' ABS head of national accounts Grace Kim said. Net trade detracted 0.8 percentage points from GDP growth. Imports surged on the back of higher fuel prices and the AI boom, resulting in Australia's first trade deficit since December 2017. The data centre build-out, which drove a massive increase in business investment, is highly reliant on imported server racks, while increased use of AI software also fuelled a rise in service imports. Australia's economic growth rate slowed to 0.3 per cent in the first three months of the year Who do you think is most to blame for Australia’s economic slowdown: government, global events or banks? What's your view?The data only partially showed the effects of the RBA's three rate hikes in 2026 and the flow-on effects of the Strait of Hormuz blockade, said NAB chief economist Sally Auld. But it would provide a baseline for where the economy was before the Middle East conflict and the budget tax changes hit sentiment in the housing market, she said. 'Growth is clearly moderating, which would give the Reserve Bank confidence that they're on track in terms of getting a better balance between aggregate demand and aggregate supply,' Dr Auld told AAP ahead of the release. As an incipient downturn in Sydney and Melbourne spreads to other markets, it could further slow the economy and make the RBA's job of tackling inflation somewhat easier. Ahead of the release, rates markets were fully priced in for an RBA hold at its next meeting in June. But market pricing suggested a four in five chance of another rate hike by the end of the year. Treasurer Jim Chalmers said it was a very solid result in the circumstances. 'This is the equal fastest pace of annual growth in almost three years,' he said in a statement. 'It shows how resilient our economy is at a time of substantial global economic volatility.' No comments have so far been submitted. Why not be the first to send us your thoughts, or debate this issue live on our message boards. By posting your comment you agree to our house rules. Do you want to automatically post your MailOnline comments to your Facebook Timeline? Your comment will be posted to MailOnline as usual. Do you want to automatically post your MailOnline comments to your Facebook Timeline? Your comment will be posted to MailOnline as usual We will automatically post your comment and a link to the news story to your Facebook timeline at the same time it is posted on MailOnline. To do this we will link your MailOnline account with your Facebook account. We’ll ask you to confirm this for your first post to Facebook. You can choose on each post whether you would like it to be posted to Facebook. Your details from Facebook will be used to provide you with tailored content, marketing and ads in line with our Privacy Policy.