(3 September 2025 – Australia) A sustained lift in Australian GDP growth is impossible without a material rise in private business investment, economists warn.
The Australian Bureau of Statistics (ABS) confirmed GDP expanded 0.6 percent in Q2 2025. A concerning 0.1 percent slide in private sector capital expenditure was offset by improving retail spending, consumer sentiment in general and a lift in iron ore and LNG exports offset.
The annual rate of economic growth increased to 1.8 percent from 1.4 percent in Q1 2025, still lagging the long-run average of 2.7 percent.
The transition from public sector-led economic growth in the wake of the pandemic to private sector-led investment is slowly gathering pace however concerns continue to be raised about whether corporates will start to deploy capital more freely and match the strong level of enthusiasm displayed by consumers buoyed by falling interest rates and rising residential housing prices.
The rapid rise in fiscal stimulus has driven government spending to a near-record 28.8 percent of nominal GDP, but analysts expect the public sector’s contribution to growth to decline steadily. Treasurer Jim Chalmers claims the private sector is taking its rightful place as the primary driver of growth, arguing the weakness in business investment is mainly ascribed to the volatile nature of the project pipeline.
“The recovery is excruciatingly slow and the economy is sub-optimal despite the uplift in consumer spending. More troubling in the June quarter was the business investment story, which has been lagging for some time” commented EY Chief Economist, Cherelle Murphy for the AFR.
“As a share of GDP, business investment is just 12.3 percent of GDP, lower than the March quarter result and not far above the pandemic low of 11.1 percent or the 1990s recession low of 10.6 percent of GDP. Similarly, company profits have been edging down as a share of GDP for three years and business confidence measures remain soft.”