Australia’s economy grew 0.4% in the June quarter and 2.1% year over year, beating forecasts and fueling expectations of an earlier RBA rate move.

GDP expanded 0.4% quarter-on-quarter and 2.1% year-on-year, helped by imports and pockets of spending, underscoring a solid but uneven growth path.

On an annual basis, growth slowed to 2.1% from 2.5% in March but remains above the RBA’s 2% potential-growth estimate.

Much of the investment in datacentres is imported, boosting investment figures while reducing net exports and complicating interpretations of domestic demand and inflation.

Labor productivity stayed flat or declined, with AI tools not yet delivering measurable gains in the data.

Discretionary spending cooled when excluding vehicle purchases, as rising mortgage costs eroded household income and constrained overall consumption.

The economy faces persistent headwinds from inflation and higher borrowing costs, with potential further policy tightening on the horizon.

Investment in data-centre-related machinery and equipment was a key but volatile driver; overall machinery investment fell 6.6% in the quarter while year-over-year it rose 15.9%.

Imports fell 4.6% to A$44.34 billion, with declines in intermediate goods and fuel imports offset by some gains in capital and consumption goods.

Analysts warn the growth may be unsustainable given weak productivity, flat per-capita GDP, and rising unit labor costs, fueling dialogue on continued rate hikes.

ABS notes the economy cooled and households remained cautious, contributing to subdued growth.

Markets view the report as a possible green light for further rate hikes, with inflation risks persisting despite pockets of activity.