Headline growth figures point toward consistent growth across the economy

Domestic demand falters, while export-oriented industries surge

The divergent growth dynamics across various sections of the economy create an urgent need for firms to segment resilient customer and product groups and focus their sales efforts in these areas to maximize top-line opportunities. Moreover, pricing decisions will also require strategic segmentation across customer groups, as price sensitivity will be acute among sectors facing subdued demand trends.

Firms should also develop plans for 2024 with both upside and downside scenarios in mind, as business conditions have the potential to shift rapidly, and firms that are most agile will be the most successful in this environment. On the downside, persistent inflation and credit cost pressures could ensure that economic weakness persists deep into 2024. On the upside, Australia’s strong labor market and steady investment growth could prompt a rebound earlier than expected next year. Creating contingency plans around these eventualities will ensure that firms position themselves for success in a complex demand environment.


The Australian economy grew by 2.1% YOY in Q2 2023. While the headline figure for economic growth is strong, there are some cracks emerging in the market, especially around domestic demand. 

  • Consumer spending: Household spending grew by 1.5% in YOY terms, but only 0.1% in QOQ terms. This signals a clear slowdown in consumption, as households are feeling the squeeze of persistent inflation, high interest rates, and declining purchasing power. As a result, spending on discretionary items, such as recreation and entertainment services as well as consumer goods, declined in Q2 2023. Only spending on food services and transport displayed growth last quarter.
  • Investments: Investments contracted by 1.1% YOY in Q2 2023. However, this contraction was driven by a decline in inventories among Australian producers. After accounting for inventory declines, we see that investment levels in both the public and private sectors displayed positive growth. Public investments into transport, health, and education infrastructure remain strong, while private investments into non-residential construction and capital equipment present demand opportunities as well. 
  • Exports: Exports remain a bright spot in the Australian economy, rising by 9.8% YOY and beating expectations. Both exports of goods and services displayed robust growth thanks to strong demand for Australian commodities and a healthy rebound in the tourism industry. 

Our View

The latest GDP data for Australia highlights both the resilience of the market as well as some of the challenges firms will encounter over the coming quarters. On the one hand, the externally oriented industries present a variety of opportunities, with steady growth expected in the tourism, accommodations, and primary goods sectors. On the other hand, domestic demand is entering a period of contraction. Declining household purchasing power and savings are driving a contraction in spending, especially for discretionary goods and services. Moreover, weak manufacturing demand has forced Australian producers to cut output levels and draw down on inventory holdings to fulfill orders.

This divergence in growth is expected to continue through H1 2024, as domestic demand will take several quarters to recover. Household spending will be restrained by soaring costs and mortgage pressures before improving real wages support a gradual demand recovery over the course of next year. Similarly, producers will be hindered by weak global manufacturing activity and high credit costs in the short term, with a gradual easing of these headwinds expected in 2024.

However, despite some of the demand weakness expected in the short term, the Australian economy will not face any large contractions. As mentioned above, pockets of resilience are scattered across the economy and will provide opportunities for multinationals. Apart from tourism and mining, food manufacturers are seeing steady growth as well. Non-residential construction will also prove to be a bright spot, with strong investment flows into the sector. Finally, even household spending will be supported by a strong labor market. Thousands of jobs have been added to the economy over the past year, shoring up household finances and creating a huge need for rapid migration to address the country’s labor shortage.

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