UPDATE: Australia’s stronger-than-expected economic growth has raised alarms over the possibility of further interest rate cuts, according to Reserve Bank of Australia Governor Michele Bullock. In a speech on September 3, 2025, Bullock stated she does not yet know what the latest economic data means for future rate adjustments but suggested that the momentum could limit the potential for cuts.
During the 60th Shann Memorial Lecture at the University of Western Australia, Bullock emphasized the uncertainty surrounding interest rates. “It does mean that it’s possible that if it keeps going, then there may not be many interest rate declines left to come,” she remarked, eliciting laughter from the audience of economists.
The Australian Bureau of Statistics reported a surprising rise in the nation’s Gross Domestic Product (GDP), which surged to 1.8 percent on an annual basis in June, exceeding the Reserve Bank’s forecast of 1.6 percent. This economic boost has led traders to reassess their expectations for rate cuts, diminishing the projected reductions from 50 basis points to 44 basis points for the upcoming months.
Despite the positive growth signals, CommSec chief economist Ryan Felsman cautioned that the Reserve Bank may not deviate from its gradual easing cycle. Markets are still pricing in a potential 25-basis point reduction to the cash rate in November, but the overall sentiment indicates a higher risk of fewer than two additional cuts.
In a related positive trend, productivity, as measured by GDP per hour worked, increased by 0.3 percent over the quarter, reflecting a 0.2 percent rise year-on-year. However, this remains significantly below Australia’s historical average, indicating limitations on the nation’s growth potential.
Treasurer Jim Chalmers emphasized that improving productivity is crucial. “The key to that question is really, how do we lift the speed limit on our economy?” he stated. Chalmers noted that to achieve faster growth with low inflation, the government must focus on enhancing productivity.
The Reserve Bank has recently downgraded its medium-term productivity growth assumption to 0.7 percent, leading to a revised GDP growth potential of just 2 percent annually. Without a significant rise in productivity, inflation could struggle to remain within the Reserve Bank’s target band of 2 to 3 percent, according to Felsman.
Looking ahead, analysts stress the need for increased business investment to drive sustainable productivity improvements. Recent reports indicated a 0.4 percent decline in business investment over the quarter, partly attributed to the completion of major mining and renewable energy projects. Nonetheless, investment in intellectual property saw a significant rise of 1.9 percent, indicating a shift towards innovation.
HSBC chief economist Paul Bloxham raised concerns about the economy operating near full capacity. “Is this as good as it gets? That’s the question we are asking after today’s GDP print,” he said, reflecting the uncertainty among economists regarding future growth prospects.
As the RBA navigates this complex economic landscape, all eyes will be on upcoming data releases and monetary policy decisions. The implications of Australia’s economic growth are more pressing than ever, affecting not just the financial markets, but also the everyday lives of Australians.
