Australia’s Gross Domestic Product expected to show modest Q1 growth

• Australian Gross Domestic Product is foreseen at 0.4% in the first quarter of 2025.
• The Reserve Bank of Australia is ready to deliver more aggressive rate cuts if needed.
• The Australian Dollar trades in a well-limited range against its American rival.

The Australian Gross Domestic Product (GDP) will be released on Wednesday, with mixed expectations ahead of the announcement. The first quarter (Q1) figures from the Australian Bureau of Statistics (ABS) are expected to show that the economy made modest progress in the three months to March 2025. The quarter-on-quarter (QoQ) GDP is foreseen at 0.4%, down from the 0.6% posted in the previous quarter, while the annualised reading is foreseen at 1.5% after posting 1.3% in Q4 2024.

Market analysts believe that, while the impact of United States (US) President Donald Trump’s tariffs could be limited on the Australian economy, the global uncertainty related to massive levies will likely affect economic progress, at least in the near term. Tensions arose ahead of the GDP release as Trump doubled tariffs on aluminium and steel imports into the US from 25% to 50%.

The latest headlines may have no direct impact on Australian Q1 GDP, but are taking their toll on the market’s mood, mainly keeping the US Dollar (USD) on the back foot despite intraday upward corrections.

What to expect from the Q1 GDP report

The annual pace of Australian economic growth is expected to have accelerated in the first three months of the year, with some assistance from the Reserve Bank of Australia (RBA). After holding rates near record levels for a long time, the RBA Board finally began trimming the Official Cash Rate (OCR) in February, reducing the benchmark by 25 basis points (bps) from 4.35% to 4.10%. A similar decision was taken in May, with the OCR currently standing at 3.85%.

Back then, the accompanying statement stated: “Uncertainty in the world economy has increased over the past three months and volatility in financial markets rose sharply for a time. While recent announcements on tariffs have resulted in a rebound in financial market prices, there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries. Geopolitical uncertainties also remain pronounced. These developments are expected to have an adverse effect on global economic activity, particularly if households and firms delay expenditure pending greater clarity on the outlook.”

The Minutes of the RBA´s May 20 meeting, released early on Tuesday, showed that officials considered a possible 50 bps cut but ultimately opted for a more discrete action. Still, policymakers made it clear that the Board is prepared to “respond to international developments if they were to have material implications for activity and inflation” in Australia, referring to the potential effect of Trump’s global trade war.

On a positive note, officials were more confident about the progress on inflation. The annual Trimmed Mean Consumer Price Index (CPI) stood at 2.9% year-over-year (YoY) in the March quarter, marking the first time it has been below 3% since 2021. The staff projected that headline inflation is likely to rise over the coming year, but also expect underlying inflation to be around the midpoint of the 2%–3% range.

Ahead of the announcement, the National Australian Bank (NAB) anticipates: “Overall, we see growth over 2025 remaining below trend despite the ongoing recovery before rising to around 2¼% % over 2026. We see the largest risks to growth this year coming from a weaker global backdrop, and in particular, the risk that heightened global uncertainty leads to weaker business investment and employment outcomes and weighs on consumers despite the improving real income story.”

On the other hand, Westpac states: “We have downgraded our GDP forecast to 0.1% QoQ and 1.2% YoY in Q1 2025 following the latest batch of indicators. Public demand, net exports and investment in intangibles all disappointed. While some of the weakness reflects bigger than expected impacts from weather-related disruptions, it is undoubtedly the case that growth remains sluggish.”

How can the GDP report affect the Australian Dollar?

The Q1 GDP report will be released on Wednesday at 01:30 GMT. Ahead of the announcement, the Australian Dollar (AUD) eases against the USD, with the AUD/USD pair trading around 0.6450. The American currency experienced some near-term demand after falling at the beginning of the week due to mounting tensions between the US and China.

Generally speaking, upbeat figures should boost the AUD, while a slower pace of growth should put pressure on the Australian currency.

Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair trades in a well-limited range since mid-May, with buyers aligned in the 0.6380/90 region and sellers containing advances at around 0.6520. Ahead of the GDP release, the technical picture is neutral, according to the daily chart, with the downward potential limited. AUD/USD rests above all its moving averages, which remain directionless, while technical indicators offer neutral-to-bearish slopes, developing above their midlines. GDP data needs to be extremely disappointing for the pair to break the bottom of the range.”

Bednarik adds: “An upbeat reading could push the AUD/USD pair towards the 0.6530 region, while further gains expose the 0.6570 price zone. Near-term support comes at the 0.6400 threshold, followed by the 0.6380 area.”