Australia’s Economy Gathers Momentum as Fresh Storms Brew

Australia’s economy grew at a faster pace in the fourth quarter of 2024, shrugging off the threat of a recession just as the global outlook has dimmed amid a rapidly escalating trade war led by the U.S., and a sharp rise in geopolitical risks.

The economy grew 0.6% sequentially in the December quarter, and by 1.3% from a year earlier, the Australian Bureau of Statistics said Wednesday. The economy had clocked an annual growth rate of 0.8% in the prior quarter.

While the economic growth remains well below its historical average pace, it is pulling clear of a slump that saw growth virtually flat-line over the last year. Meanwhile, fresh storms are brewing as the U.S. moves to drive up tariffs on its key trading partners and stoke global uncertainty by halting aid for Ukraine in its war against Russia.

The Reserve Bank of Australia has said it is watching the situation closely, especially in terms of how it affects China, the country’s largest trading partner. However, the RBA’s trajectory for interest rates remains unclear as the central bank is uncertain about how crippled global supply chains and rapidly rising tariffs will affect inflation.

Coupled with the probability of weakened global growth, the central bank remains cautious.

RBA Deputy Gov. Andrew Hauser told a conference earlier Wednesday that even as the global backdrop weakens, the policy-making board of the RBA doesn’t yet see a need for a series of interest rate cuts, adding to the one announced in February.

“Interest rates will go where they need to go to maximize the chances of keeping inflation sustainably in the target band while helping to sustain full employment. Progress towards that target has been good — but it is too soon to declare victory,” Hauser told the AFR Business Summit.

Both public and private spending contributed to the modest recovery in growth in the fourth quarter, supported by a rise in exports of goods and services, the ABS said.

GDP per capita grew 0.1% this quarter following seven consecutive quarters of falls, it added.

Household spending rose 0.4% after a flat result in the September quarter with spending on essentials such as rent and health among the highest contributors to spending growth, the data showed.

Household discretionary spending rose as people made the most of retail sales events and increased spending on hospitality, the ABS said.

Growth in government spending moderated to 0.7% per cent in the quarter following larger rises in previous quarters, the data showed.

Private investment rose 0.3% in the quarter with a focus of new engineering, construction of electricity generation and distribution projects, and mining.

Public investment rose 1.8% amid a boom in state and territory government spending on public transport, roads, water and renewable electricity infrastructure, the ABS said.

Write to James Glynn at james.glynn@wsj.com

The recent budget has forced a reckoning for property investors.

Negative gearing now restricted to new residential builds, the CGT discount gone and on paper, the numbers look different.

And many investors are responding by pivoting toward yield, prioritising cash flow over capital growth in a way that property strategists say misses the point entirely.

“The debate has shifted to yield versus growth as if they are opposing forces,” says Abdullah Nouh, founder of Melbourne-based buyers’ agency Mecca Property Group. “But that framing is itself the mistake.”

Nouh, who works with high-net-worth families and investors on long-term acquisition strategy, argues that capital growth remains the primary driver of genuine wealth creation and that the post-budget environment has made quality assets more important, not less.

The numbers make his case plainly. An additional $500 per week in rental income is welcome. A prestige asset appreciating by $1 million over a market cycle is transformative.

These are not equivalent outcomes, and portfolios built around yield at the expense of location and land value tend to generate income while wealth stands largely still.

The more nuanced shift Nouh is seeing among sophisticated investors is a move toward assets where both outcomes can be engineered simultaneously – established homes on substantial land in quality locations, where the existing dwelling can be repositioned, rental returns improved, and the underlying land value compounds independent of what sits on it.

For investors with existing equity, commercial property is also entering the conversation in a more serious way.

Prestige industrial assets, medical centres and long-leased essential retail offer income profiles that residential property in most capital city markets cannot currently match: longer lease terms, tenants covering outgoings, and greater predictability than the residential tenancy cycle.

“The investors who build lasting wealth are rarely the ones who chased yield or growth exclusively,” says Nouh.

“They are the ones who built a strategy they could sustain – one that generated enough income to hold quality assets through multiple cycles while those assets compounded in value.”

The budget has changed the settings. It has not changed the fundamentals.

Australia’s Economy Gathers Momentum as Fresh Storms Brew

The federal budget has rattled property investors. But the biggest mistake isn’t the tax changes, it’s the conclusion many are drawing from them.