Australia's economy expanded faster than expected in the second quarter, with Gross Domestic Product (GDP) growing 0.4% quarter-on-quarter, outpacing the consensus estimate of 0.3%. On an annual basis, GDP growth slowed to 2.1% from 2.5% in the previous quarter, but comfortably beat market forecasts of 1.8%. The Australian Bureau of Statistics (ABS) noted that overall economic growth remains subdued, driven mainly by pockets of private demand while households remain cautious. The stronger-than-anticipated GDP reading highlights persistent domestic cost pressures, keeping the Reserve Bank of Australia (RBA) on high alert regarding inflation. While consumer spending shows signs of restraint due to elevated living costs and high interest rates, resilient private demand suggests the economy is holding up better than initially feared, reducing immediate pressure on the RBA to cut policy rates. For financial markets, these economic figures suggest that interest rates in Australia may need to stay at restrictive levels for a longer period. Traders will focus closely on upcoming labor market statistics and monthly inflation indicators to judge whether the RBA might consider additional rate hikes or prolong its policy pause, influencing short-term AUD volatility.
