The economy slowed sharply in early 2026 and Australians’ living standards are once again going backwards.
At the risk of upsetting the treasurer by “talking down the economy”, as he put it, there wasn’t all that much to love in the latest national accounts.
And a lot of the bad news was papered over by the extraordinary rush to build datacentres.
The economy was indeed running hot in the second half of 2025, which helps explain the pickup in inflationary pressures even before the US and Israel started bombing Iran in late February.
That recent strength accentuates the slowdown in the latest figures.
After expanding by 0.9% in the December quarter, real GDP growth faltered to just 0.3% in the three months to March.
Speaking to the press after the release of the official figures, Jim Chalmers remained laser focused on the annual growth in real GDP, which was steady at 2.5% in the year to March.
“This growth is really solid in the circumstances,” the treasurer said.
“You think about everything that’s coming at the Australian economy. The fact that we’ve got any growth at all, given the challenging global circumstances, I think is welcome.”
He lauded the extraordinary boom in building datacentres to cater for the looming artificial intelligence revolution. We haven’t seen this pace of new business spending since the end of the mining investment boom nearly 15 years ago.
Investment in machinery and equipment – which captures the datacentre phenomenon – was the single largest contributor to growth in the quarter, the Australian Bureau of Statistics said.
But that had to be balanced against the fact that most of the parts were imported, the ABS noted, which contributed to the big drag from net trade.
Sign up for the Breaking News Australia emailEven so, Pat Bustamante, a senior economist at Westpac, reckons that the spillover effects to other parts of the economy from all that datacentre construction still added 0.5 percentage points to total real GDP growth in the quarter, and about 0.8 points to the annual growth rate.
“Outside of this, investment and economic activity were weak, with the pick‑up in household consumption offset by a fall in public demand,” Bustamante said.
“This shows that the economy was clearly slowing even before the conflict in the Middle East and interest rate hikes had really started to impact.”
The pressures are most clearly shown in household incomes that are barely keeping up with inflation, according to Commonwealth Bank analysis.
Economic growth per person also went backwards in the March quarter – a sign of falling living standards. That’s the first time in a year that’s happened.
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