Australia: Soft 1Q25 GDP reinforces expectations for further easing by RBA - UOB Group

Australia's GDP posted a 0.2% q/q rise in 1Q25, lower than consensus expectations for a 0.4% q/q print, and growth pace of 0.6% q/q in 4Q24. It was also weaker than the RBA's May Statement on Monetary Policy forecast of 0.4%. From a year earlier, the economy expanded by 1.3% y/y, unchanged from 4Q24, but also below expectations of 1.5%, UOB Group's economist Lee Sue Ann reports.

RBA to further ease its policy rate

"GDP rose 0.2% q/q in 1Q25, lower than consensus expectations for a 0.4% q/q gain, and growth pace of 0.6% q/q in 4Q24. It was also weaker than the Reserve Bank of Australia (RBA)'s 0.4% forecast stipulated in the May Statement on Monetary Policy. From a year earlier, the economy expanded by 1.3% y/y, unchanged from 4Q24, but also below expectations of 1.5%."

"Ongoing uncertainty in relation to the ongoing trade war will likely have negative implications for consumption and business investment in Australia. As such, our economic growth forecast for Australia has been lowered slightly to 1.8% in 2025 (from 1.9% previously)."

"We had penciled in an additional 50 bps of easing in 2025 (25 bps cuts in August and November). That said, given the softening in the economy, low inflation and rising unemployment rate, we now expect the RBA to take the cash rate into modestly accommodative territory, delivering another 50 bps thereafter to reach a cyclical low of 2.85% (versus 3.35% previously) by mid-2026."