Breaking: Australia's economy growing at 2.5 per cent annually as slowdown begins

Australia's economy slowed down in the March quarter. (ABC News: Stephen Cavenagh)

Australia's economy grew at an annual rate of 2.5 per cent in the March quarter, the same as in the previous quarter.

But on a quarterly basis, the economy grew by just 0.3 per cent, which was much weaker than the 0.9 per cent recorded in the previous quarter.

The slowdown in the quarterly rate of growth coincided with the Reserve Bank's decision to lift interest rates in February and March.

The RBA has forecast the economy to expand by 1.9 per cent over the year to June, so it is expecting a further weakening of the economy in coming months.

Monetary policy trade-offs are getting worse — the Reserve Bank of Australia is confronting rising inflation and downgraded growth forecasts. And there's nothing much it can do.

"Rising interest rates and significantly higher fuel costs in the March quarter likely created an environment for more cautious consumer behaviour," she said.

"This resulted in reduced spending across a range of household expenditure categories."

Earlier this week, Westpac's economics team said Australia's economy was already slowing before the conflict in the Middle East, or the RBA's rate hikes in February, March and May, had really started to impact.

"The significant headwinds from the conflict will be more fully reflected in the second quarter of 2026, with the possibility of a quarterly contraction which would be the first quarterly decline since the GFC (excluding COVID)," they warned.