Australia's Economy Strengthens in 2025 as Private Spending Offsets Slower Public Demand, Westpac Says

Australia's economy picked up momentum in 2025, driven by stronger household and business spending, while the earlier lead of mining states is expected to ease as private demand rises and commodity prices ease, according to a Westpac Banking (ASX:WBC, NZE:WBC) report released Friday, Dec. 19.

Australia's economy posted modest headline growth in the September quarter, with gross domestic product (GDP) rising 0.4%, but stronger underlying domestic demand lifted annual growth to its fastest pace in a year despite drags from inventories, trade and statistical factors.

Private demand surged in the September quarter, recording its fastest quarterly growth outside the pandemic since the mining investment boom as business investment surged, led by data centers and civil aviation, per the report.

Business investment rose 3.4% in the quarter and 3.8% year-on-year, driven by machinery, intangibles, and new buildings, with growth spreading across both consumer-facing and business-facing industries.

Consumer spending eased to 0.5% in the September quarter as temporary June gains faded, while public demand rebounded, led by stabilizing infrastructure activity and a new South Australia project, the report said.

Stronger-than-expected private spending has offset weaker public demand, leading to an upward revision of the 2025 GDP forecast to 2.2%, while projections for 2026 and 2027 remain unchanged.

Gross State Product growth picked up across most states in 2025, though easing commodity prices weighed on real incomes, with only Queensland and Western Australia seeing declines, the report added.

Household consumption increased in New South Wales and Victoria but moderated in Western Australia and Queensland, while business investment remained weak and growth in housing construction and public demand varied across the states.

Australia's economic growth is set to converge across states over the coming years, supported by rising private demand, stabilizing population growth, and easing commodity prices, though productivity gaps are likely to persist.