Australian national accounts – growth is up but mostly because of inventory buildup which will reverse

I finally arrived back home late last night, so I am catching up today. Part 2 of the series I started on Monday will appear next Monday. Yesterday (March 4, 2026), the Australian Bureau of Statistics (ABS) released the latest – Australian National Accounts: National Income, Expenditure and Product, December 2025. The data shows that the Australian economy grew by 0.8 per cent in the December-quarter 2025 (up from 0.5 per cent) and by 2.6 per cent (up from 2.1) over the 12 months. But as you will see, it was the inventory cycle that was the difference and we can expect that to reverse in the March-quarter 2026 given that businesses will have replenished their stocks or not sold stocks in the last quarter of 2025. So let’s not think this rather strong growth result will persist into 2026.

The main features of the National Accounts release for the September-quarter 2025 were (seasonally adjusted):

• Real GDP increased by 0.8 per cent for the quarter (0.5 per cent last quarter). The annual growth rate was 2.6 per cent (2.1 last quarter).
• GDP per capita grew 0.4 per cent (0.1 per cent last quarter) and 0.9 per cent for the year.
• Australia’s Terms of Trade rose 0.4 per cent for the quarter and -1.2 per cent over the 12 month period.
• Real net national disposable income, which is a broader measure of change in national economic well-being, rose by 0.5 per cent for the quarter (0.4 last quarter) and 2.5 per cent over the 12 months (up from 2.1.
• The Household saving ratio (from disposable income) rose to 6.9 per cent from 6.1 per cent.
• GDP per hour worked was flat for the quarter (0.2 last quarter) and 1.0 per cent for the year.

Overall growth picture – stronger growth continues

The ABS media release – Australian economy grew 0.8% in the December quarter – said that:

Australian gross domestic product (GDP) rose 0.8 per cent in the December quarter 2025 and 2.6 per cent compared to a year ago (seasonally adjusted, chain volume measure) …

There was broad based economic growth in the quarter, with rises observed in a large majority of industries. Public and private demand each contributed 0.3 percentage points to GDP growth …

GDP per capita increased for the fourth consecutive quarter and is now 0.9 per cent higher than a year ago, the highest through the year growth since December quarter 2022 …

Discretionary spending rose 0.4 per cent reflecting the expansion of Black Friday sales and strong attendance at sporting and concert events …

Private investment increased for the fifth consecutive quarter, growing by 0.7 per cent and contributing 0.1 percentage points to GDP growth. This rise follows a 3.2 per cent increase in the previous quarter …

Public investment grew by 0.9 per cent, maintaining its strength following a 3.0 per cent rise in the September quarter …

The household saving to income ratio increased to 6.9 per cent, up from 6.1 per cent in the September quarter. The ratio is now at its highest level since the September quarter 2022. Household disposable income rose 1.8 per cent, significantly higher than the nominal increase in household spending of 1.1 per cent.

The short story:

1. Domestic demand was strong.

2. Strong support from all levels of government.

3. Investment (private and public) building new capacity.

The next graph shows the quarterly growth over the last five years with the extreme observations during the worst part of the COVID restrictions and government income support taken out.

To put this into historical context, the next graph shows the decade average annual real GDP growth rate since the 1960s (the horizontal red line is the average for the entire period (3.27 per cent) from the September-quarter 1960 to the September-quarter 2025.

Although COVID severely interrupted the economy, once we take out the quarters between March 2020 and March 2022 (inclusive), then the average since 2020 has been 1.9 per cent per annum – very mediocre.

It is also obvious how far below historical trends the growth performance of the last 2 decades have been as the fiscal surplus obsession has intensified on both sides of politics.

Even with a massive household credit binge and a once-in-a-hundred-years mining boom that was pushed by stratospheric movements in our terms of trade, our real GDP growth has declined substantially below the long-term performance.

The 1960s was the last decade where government maintained true full employment.

GDP per capita rising

In the December-quarter 2025, GDP per capita grew by 0.4 per cent.

While commentators focus on this statistics, the meaning of the average is questionable, given the highly skewed income distribution towards the top end.

What we can say is that if the average is declining, then those at the bottom are doing it very tough indeed.

The following graph of real GDP per capita (which omits the pandemic restriction quarters between December-quarter 2020 and December-quarter 2021) tells the story.

Analysis of Expenditure Components

The following graph shows the quarterly percentage growth for the major expenditure components in real terms for the September-quarter 2025 (grey bars) and the December-quarter 2025 (blue bars).

It might surprise you that most of the components were weaker than last quarter, yet overall real GDP growth was stronger.

The answer lies in the (not shown) shift in inventories to $657 million in the current quarter after falling $1,801 million in the September-quarter 2025.

Inventories are considered to be ‘investment’ expenditure and there was a huge rise in stock building by public authorities, mining and to a lesser extent the farm sector.

This sort of expenditure is highly cyclical.

Contributions to growth

The following bar graph shows the contributions to real GDP growth (in percentage points) for the main expenditure categories. It compares the December-quarter 2025 contributions (blue bars) with the previous quarter (gray bars).

You can see the massive shift in inventory contribution, which accounted for 50 per cent of the overall December-quarter growth rate.

• Household consumption expenditure added 0.1 points (down from 0.3).
• Private investment expenditure added 0.1 points (down from 0.6).
• Net exports undermined growth by 0.1 point (last quarter -0.2) – the 0.3 point export contribution outweighed the -0.4 points import subtraction (remember positive import expenditure growth constitutes a loss of growth).
• Overall government contribution was 0.3 points – the recurrent contribution (0.2 points) adding to the capital contribution (0.1 point).

Material living standards rose 0.5 points in the December-quarter

The ABS tell us that:

A broader measure of change in national economic well-being is Real net national disposable income. This measure adjusts the volume measure of GDP for the Terms of trade effect, Real net incomes from overseas and Consumption of fixed capital.

While real GDP growth (that is, total output produced in volume terms) rose by 0.8 per cent in the December-quarter, real net national disposable income growth rose by 0.5 per cent.

How do we explain that?

Answer: The terms of trade grew by 0.4 per cent in the September-quarter which complemented the rise in compensation of employees (COE) of 6.4 per cent.

The rise in COE was even across the private and public sectors and was not only a reflection of the stronger activity but also the timing of a number of scheduled wage rises as well as a bevy of new enterprise agreements being finalised.

Slight gain in productivity growth in Market-sector

Real GDP rose 0.8 per cent for the quarter, while the growth in working hours was 0.8 per cent.

Which means that GDP per hour was static for the year.

The sectoral productivity growth was:

• Market sector – 1.51 per cent (annual), 0.3 per cent (quarter).
• Non-market sector – -0.71 per cent (annual), -0.71 per cent (quarter).
• Overall – 1.01 per cent (annual), 0.0 per cent (quarter).

The following graph presents quarterly growth rates in real GDP and hours worked using the National Accounts data for the last five years to the December-quarter 2025.

To see the above graph from a different perspective, the next graph shows the annual growth in GDP per hour worked (labour productivity) from the beginning of 2008 to the December-quarter 2025.

The horizontal red line is the average annual growth since the September-quarter 2008 (0.77 per cent), which itself is an understated measure of the long-term trend growth of around 1.5 per cent per annum.

Household saving ratio improves by 0.8 points

The following graph shows the household saving ratio (% of disposable income) from the December-quarter 2000 to the current period.

It shows the period leading up to the GFC, where the credit binge was in full swing and the saving ratio was negative to the rise during the GFC and then the most recent rise.

An increasing saving ratio provides the household sector overall with an increased capacity to risk manage in the face of uncertainty.

The next graph shows the saving ratio since 1960, which illustrates the way in which the neoliberal period has squeezed household saving.

Going back to the pre-GFC period, the household saving ratio was negative and consumption growth was maintained by increasing debt – which is an unsustainable strategy given that household debt is so high.

Even though the ratio has been rising slightly in recent quarters, it is still well below past levels.

The following table shows the impact of the neoliberal era on household saving. These patterns are replicated around the world and expose our economies to the threat of financial crises much more than in pre-neoliberal decades.

Decade	Average Household Saving Ratio (% of disposable income)
1960s	13.9
1970s	16.0
1980s	11.8
1990s	4.8
2000s	1.2
2010s	6.2
2020s on	8.6
Since RBA hikes	4.5

The distribution of national income – wage share falls 0.2 points

The wage share in national income fell from 54.1 per cent to 53.9 per cent in the December-quarter 2025.

The profit share rose 0.1 point to 27.1 per cent.

The residual is largely the government share.

The first graph shows the wage share in national income while the second shows the profit share.

The declining share of wages historically is a product of neoliberalism and will ultimately have to be reversed if Australia is to enjoy sustainable rises in standards of living without record levels of household debt being relied on for consumption growth.

Conclusion

Remember that the National Accounts data is three months old – a rear-vision view – of what has passed and to use it to predict future trends is not straightforward.

The Australian economy grew by 0.8 per cent in the December-quarter 2025 (up from 0.5 per cent) and by 2.6 per cent (up from 2.1) over the 12 months.

The inventory cycle was the difference and we can expect that to reverse in the March-quarter 2026 given that businesses will have replenished their stocks or not sold stocks in the last quarter of 2025.

So let’s not think this rather strong growth result will persist into 2026.

Clarification on terminology

I advocate a degrowth strategy for the global economy overall given that our footprint is 1.7 times the capacity of the biosphere to regenerate.

To achieve that strategy, given that many poorer nations must continue to grow, will require rather substantial cut backs in spending and consumption in the richer nations.

When I analyse the National Accounts data or any expenditure/output data, I write as if growth is ‘good’.

But that terminology is used in the context that without economic growth and without any substantial shifts in income distribution and government transition policies, trying to pursue a recessionary strategy would damage the weakest members of our society disproportionately.

In some respects, I am abstracting from the damaging reality of our ecological footprint.

That is enough for today!

(c) Copyright 2026 William Mitchell. All Rights Reserved.