Economic growth in Australia has slowed sharply and is now stabilising at a weak pace, with a possibility of contraction in Q2 2026, according to Westpac.
The country’s GDP is projected to grow by around 0.2 per cent quarter on quarter (QoQ) in Q2 2026, broadly in line with the sluggish 0.3-per cent QoQ outcome in Q1.
Looking ahead, the risk profile remains skewed to the downside.
Based on historical patterns, the probability of a negative quarter in Q2 2026 sits at 27 per cent.
In other words, there is a one-in-four chance of a contraction in Q2 2026—higher than the estimated 10-per cent probability of a negative quarter in Q3 2026, where Westpac-Now framework suggests the economy is likely to be growing closer to normal or trend growth.
Growth momentum remains soft, with growth having slipped back to the sluggish, sub-par pace seen in late 2024 and early 2025.
The material step-down in Q1 GDP growth was consistent with Westpac-Now’s final estimate.
The Westpac monthly activity index has been declining since November 2025, bringing the index back to levels last seen in Q1 2025, when the central bank began easing policy to support demand.
Despite this, there are signs that conditions are stabilising, with the fall in the index in May less than half the decline recorded in April.
The central bank may view this as an unavoidable cost of ensuring inflation makes a sustained return to the 2-3-per cent target over a reasonable time-frame. However, a sharper-than-expected slowdown complicates the policy trade-off for inflation control, Westpac noted.
Westpac-Now’s central projection has year-ended growth slowing to 1.7 per cent year on year (YoY) in Q2 2026, below the central bank’s expectation of 1.9 per cent YoY.
Looking ahead, the risk profile remains skewed to the downside, Westpac said in a release.
A sharper-than-expected slowdown would shift risks toward the real economy and complicate the central bank’s inflation trade-off, particularly given still heightened uncertainty around the ongoing inflation impact from energy-related cost pressures, it added.
Fibre2Fashion News Desk (DS)
