Business Profits Surge as Economy Gains Momentum

Business profits outside the mining sector saw their biggest jump in two years, with earnings rising 5.9% to $79 billion in December. This boost has economists optimistic that GDP data set for release on Wednesday will confirm an economic uptick, although growth is still below long-term trends. A 0.5% GDP increase for the December quarter, if confirmed, would mark the fastest growth since September 2023.

Australia’s economy has struggled with sluggish growth for nearly 2 years, but the latest figures from the Australian Bureau of Statistics suggest a turnaround. Sectors directly linked to consumer demand, such as bars, hotels and wholesale trade, showed strong earnings growth as businesses adapted to changing spending patterns. At the same time, interest rate cuts on the horizon have raised hopes that consumer confidence will continue to improve.

Non-mining businesses led the earnings surge, with wholesale trade profits climbing 19%—their sharpest increase in a decade—while hospitality profits rose 10% in the final quarter of the year. The overall business profit trend was positive, but some economists caution that changes in inventory valuations may have influenced the results more than actual sales increases. Meanwhile, mining sector earnings grew 6% to $52 billion, though still well below their 2022 peak when global commodity prices spiked.

With a federal election approaching, the government hopes economic recovery signals and eased inflation concerns will boost voter confidence. Recent polling suggests economic concerns, particularly the cost of living, remain top of mind for Australians. If GDP growth hits 0.5%, it would push annual economic growth to 1.2%—a modest improvement but still far from pre-pandemic levels. Economists will be closely watching additional government spending and export data due before finalising their growth forecasts.

Source: Australian Financial Review, ABS, Statista