The RBA’s outlook underscores a slower economy in 2026, with growth easing to roughly 1.9% in Q2 and about 1.3% by year-end amid tighter policy and external pressures.

Early indicators suggest rate hikes are cooling demand: April household consumption fell, national home prices were flat, and the unemployment rate began to rise.

These tightening signals show consumption weakness and a softening labor market as the economy adjusts.

Government spending was flat in Q1, contributing nothing to GDP growth and pushing more reliance onto business investment and household consumption.

Australia’s current account deficit widened in the March quarter as imports of data centre equipment and fuels surged while exports fell, placing the deficit at A$27.1 billion and pulling net trade as a drag on GDP.

The deficit expanded from a A$23.0 billion prior quarter, beating economists’ forecasts for about a A$23.2 billion shortfall, with net exports subtracting roughly 0.8 percentage points from GDP versus an expected 0.5-point drag.

Exports slipped as goods fell 1.2% and services 1.3% while education-related travel services were hit by fewer international students, and imports rose notably for data centre equipment and fuels.

Analysts expect slower growth ahead, with the RBA projecting about 1.9% growth by the second quarter and around 1.3% by year-end as policy tightening and external shocks filter through.

With government spending stagnant, investment and consumption shoulder the growth burden for the quarter.

The current account weakness comes as GDP for the March quarter may slow to around 0.2%, influenced by higher oil prices and continued investment in data centres.

Oil prices have surged amid US-Iran tensions and broader Middle East conflict, lifting import costs and contributing to inflationary pressures.

Economists had anticipated another 0.8% decline in the current account balance, underscoring a cautious outlook ahead of official GDP figures.