Australia’s mining-heavy states kept the national economy going in the March quarter, despite ANZ’s warning that growth is slowing and inflation remains uncomfortably high.
What exactly does this mean?
In a Friday note, ANZ Research, the research arm of Australia and New Zealand Banking Group, stated that New South Wales, Western Australia, and Queensland did the majority of the heavy lifting in the March quarter, with South Australia also outperforming. However, the bank anticipates the overall rate to decline, with year-over-year growth falling to 1.1% in 2026 from 2.5% in 2025. The weak link is the consumer. ANZ’s “Stateometer” shows that household demand is running below its long-run trend in all states, and the national data illustrate why: overall household consumption increased by 0.5% in the quarter, while discretionary expenditure increased by only 0.1%. This comes as inflation rose 4.1% year on year in the first quarter, owing to increasing fuel prices. Fuel inflation is particularly difficult to manage since people cannot readily avoid it, resulting in a squeeze on real income. ANZ also observed that those inflation figures were primarily prior to the most recent Middle East escalation, implying that the next update may still include newer energy-price pressure.
Why should I care?
For markets, Australia’s 4.1% inflation is translating into only 0.1% discretionary expenditure growth.
When gas prices rise, households tend to prioritize necessities and reduce discretionary spending, such as clothing and dining out. This shift is important for publicly traded consumer-discretionary companies since many of their costs do not decline significantly when sales stall (think rent, staff, and logistics). So even a slight drop in volumes can have a significant impact on profit margins. To put it another way, mining-heavy states can maintain the headline GDP seeming stable while profits risk rises in portions of the Australian stock market that rely on rate- and gas-pump-sensitive customers.
