Australia's economy slows as GDP rises just 0.3 per cent in first quarter, ASX rises — as it happened

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Commonwealth Bank senior economist Trent Saunders has updated his forecast on the expected housing market response to the budget's proposed negative gearing and capital gains tax changes.

Saunders now expects a fall of "just under 5% below where they would have otherwise been", which is revised lower from an initial forecast of a 3% impact.

Saunders says that's because of an "assessment that many investors are unlikely to place much value on the ability to quarantine losses."

"Weaker sentiment, together with three interest rate hikes in quick succession and challenges around housing affordability, place additional risk to the near‑term outlook for home prices," he warns.

"As a result, we have downgraded our home prices forecasts. We now expect national dwelling prices to be flat over 2026, down from a forecast of 3% at Budget and 5% in March."

Saunders also had bad news for his bosses and CBA shareholders, as well as those at the other major banks.

"Housing lending is also expected to be weaker given borrowing constraints and reduced demand," he warned.

"We expect investor lending to halve over 2026 compared to Q4 25. Housing credit growth is expected to slow, with owner‑occupier credit growth expected to trough at 5.5% and investor credit growth at 3.5%."

However, he expects the market would find a floor next year, with the likelihood of some interest rate reductions set to provide a boost.

"Home prices should stabilise and lift in 2027 as lower prices see borrowing constraints ease and higher rental yields bring buyers back into the market," he wrote.

"Our expectation for lower interest rates in 2027 should also support a recovery in prices, but there is a degree of uncertainty around the cash rate outlook."

I had a great chat with Sam Hawley on ABC News Daily about whether the budget tax changes would fundamentally reshape Australia's housing market and improve affordability. You can listen to that here:

Another senior KPMG Australia executive has stepped aside, as the fallout from the firm’s audit leak scandal widens.

Chief operating officer Eileen Hoggett will return to a full-time audit role while investigations continue. It follows last week’s resignations of chief executive Andrew Yates and audit boss Julian McPherson.

The scandal centres on whistleblower allegations that KPMG auditors misused confidential client documents, including claims involving Lendlease board papers being used to help pitch for other major audit work.

KPMG’s interim CEO Stan Stavros has told staff the firm should have handled things differently, warning public scrutiny is likely to continue.

You can read all the details below, as reported by the ABC's Nassim Khadem. 

As we've reported today, the productivity figures in the National Accounts were not good.

Here's a take on the numbers from HSBC's chief economist, Paul Bloxham:

The GDP figures also provided some further worrisome signs in the form of continued weak productivity outcomes.

GDP per hour worked fell by 0.6% q-o-q to be only 0.3% higher y-o-y.

At 0.3%, annual productivity growth is tracking along at its average of the past decade, which is very low by historical standards.

A lift in oil prices helped the energy sector today up 2.2%.

But the miners also dug in to gain 1.2% as a sector.

The S&P/ASX 200 closed up 61.30 points or 0.70% to 8,785 and crossed above its 200-day moving average.

The top performing stocks in this index were PALADIN ENERGY LTD and TUAS LIMITED, up 11% and 10% respectively.

Over the last five days, the index has gained 0.78% but is virtually unchanged year to date.

The index is also 4.5% below its late February record high.

International bank HSBC has penned a note saying it's concerned Australia's weakening productivity, falling savings rate and consecutive interest rate hikes risk pushing the economy into recession later this year.

"Our take is the economy has been subjected to a number of negative shocks, the effect of which has mostly arrived in March, April and May, and which have sharply weakened sentiment and some timely activity indicators," HSBC chief economist Paul Bloxham said.

"These include the RBA's three back-to-back rate hikes and the Middle East conflict shock.

"A third shock may have also arrived in the form of the budget - given it is expected to weaken housing prices and housing turnover and given the economic uncertainty that comes from substantially shifting tax arrangements.

"Our view, since March, has been that GDP is likely to contract in Q2 - we see the collection of indicators above as supporting that view," Mr Bloxham said.

A technical recession is defined as two consecutive negative quarters of economic growth.

"The risk is rising that there may be two consecutive quarters of falling GDP," Paul Bloxham added.

Property developer, Oliver Hume Property Group, has added its 2 cents to the GDP commentary which has come in thick and fast from across the nation today.

Here's an excerpt of some of that commentary which landed on my desk a short time ago:

Today’s slightly weaker than expected GDP result for the March quarter is going to be the first in a series of a few soft quarters as the global uncertainty that kicked off in late February continues to work its way through the domestic economy.

For property, and particularly land, rates and regulatory bottlenecks are still the main drivers of activity and price. The taxation changes announced in the budget matter, but they are secondary. A stabilisation in the outlook for interest rates and a resilient household sector will do more for property markets over the rest of 2026 and into 2027 than anything else.

The firm is saying that if this economic weakness continues, it will see fewer, if any, interest rate hikes, which would be supportive of the property market.

New data shows Australia’s economy was already slowing the first three months of the year, before the full impact of a series of interest rate hikes and the war in the Middle East washed through.

So what does this slowdown mean for the outlook for interest rates?

And what will the Fair Work Commission's wage hike mean for Australia's workers?

Carrington Clarke and ABC Business Reporter Steph Chalmers break it all down on ABC Business Daily.

Let's talk bonds for a moment.

The Australia 3 Year Bond is often referenced in money markets as a sound barometer for interest rate expectations.

For context, the cash rate is the overnight borrowing rate.

The RBA influences this rate when it makes an interest rate decision.

The 3-Year Bond rate tries to anticipate moves further "down the curve" as market participants say.

Today, the yield on this bond is 4.559%.

The cash rate is 4.35%.

This means the money markets are pricing in a further 0.209% of yield over the longer term.

It means market participants think there's a much better than even chance the Reserve Bank will hike interest rates again this year, but it's not a certainty.

RBC Capital Markets has released a economic note basically saying the economy has stalled and households are quietly squireling money away preparing for a nasty downturn.

Here's an excerpt:

Households had been steadily rebuilding their buffers, with the savings ratio climbing from the pre-covid lows of under 2%.

But with disposable income growth dropping from 7.1%y/y to 5.0%y/y, the savings rate followed with a fall from 7% to 6.2%.

For those following stocks today, here's a snapshot of individual sector performances today.

The commodities markets are doing backflips and cartwheels again in Asia trade.

Here's a snapshot.

Gold has slipped back into a bear market, and oil is rising on the back of renewed geo-political tensions in the Middle East.

Several financial institutions expect the Reserve Bank to hike interest rates at least one more time this year.

The ongoing Iran war, weak productivity and higher wages, they say, are set to keep inflation well above the RBA's target band of between 2 and 3%.

Not the CBA though.

"Household consumption is also expected to slow under the weight of slower income growth. Discretionary spending has already been softening, the savings rate fell in the quarter, and a weaker housing market is an emerging downside risk," CBA said in a note.

"We continue to expect no further rate hikes by the Reserve Bank of Australia with signs of a softening in activity outweighing lingering inflation concerns."

Let's revisit this productivity problem.

AMP's latest note looks at weak productivity like a big weight, dragging down the economy.

"Other important pieces of information in the data are productivity measures, which took another step down and remain extremely low," an AMP note said.

"Productivity as measured by “GDP per hour worked” fell by 0.6%, after basically no growth in the last two quarters and is up only 0.3% over the past year.

"This is a massive drag on the economy, as it reduces our potential to grow (it impacts our “speed limit” and therefore dampens living standards."

Hey Bridget,

Yes, but the economic slowdown was expected to coincide with slower growth in prices ... which has not happened.

But I love your question.

DT

Investment bank JPMorgan says the Reserve Bank is likely to threaten higher interest rates over the coming months despite obvious weakness in the economy.

"But alongside yesterday's minimum wage decision and ongoing Middle East risks, the sense of a constrained supply side will keep at least some tightening bias baked into RBA commentary and market pricing near term, even if in our view, policy is on hold."

"More contemporary data on consumption and housing suggest further slowing into the middle of the year, presenting some downside risks to 2Q/3Q."

Hi there,

Constrained productivity growth limits the ability of wages to grow without generating further inflation.

Or at least that's what the textbooks tell us.

DT

Australian consumers kept spending over the three months to March.

How?

Well, they cracked open the piggy bank a little more.

The household savings rate fell to 6.2%, from 7% last quarter, which is basically around its long-run average.

"Consumers drew down on savings to fund spending, as income growth was low," AMP said in a note.

Let's move away from all-things economy for a moment to say that BHP Group -- the world's biggest mining company -- has hit a record high stock price today.

At 1:30pm AEST it was trading up 2.1% to $64.76.

The little "D"s you can see on the chart mark the days that shareholders received a dividend.

You'll notice the following day, known as the ex-dividend day, the share price plummets.

This is because new investors, on this day, are not entitled to the most recently declared dividend.