Australia’s economic output is shrinking again as immigration soars – threatening to quickly send the country back into a per capita recession.

Gross domestic product per capita – or the average amount produced by every Australian – shrunk by 0.2 per cent in the March quarter, new national accounts data released on Wednesday showed.

Australia had been in a per capita recession from early 2023 until the September quarter of 2024 during a period coinciding with record-high immigration. 

This marked the worst stagnation in output since the early 1980s. 

Now GDP per capita sunk into negative territory again in the March quarter, and figures also showed productivity was flat for the same period, resulting in a one per cent decline over the year.

Weaker hourly output also potentially risks pushing up inflation as it increases the wage toll on businesses, who pass the additional cost on to consumers via higher prices. 

Westpac senior economist Pat Bustamante said Australia risked having both weak economic growth and a return to high inflation.

‘This leaves policymakers stuck between supporting growth and managing inflation risks,’ he said.

EY chief economist Cherelle Murphy said the Albanese government has made little progress toward tackling the productivity crisis.

‘Productivity growth was flat in the quarter and down over the year, with no evidence that Australia is making any progress in shifting the problem which worsened in the immediate aftermath of the pandemic,’ she said.

Immigration levels were still high in the year to March with 437,440 people moving to Australia on a net permanent and long-term basis, with this net figure factoring in skilled migrants and international students.

The Institute of Public Affairs think tank noted that since Labor came to power in May 2022, Australia’s GDP per capita had fallen by 1.7 per as the population grew by 5.9 per cent. 

IPA fellow Kevin You said this simply made Australians poorer.

‘As the federal government has relied on the lazy approach of mass migration to keep the aggregate economy afloat, the overall economic pie may have continued to grow at a headline level, but each Australian is being left with an ever-shrinking slice,’ he said.

Treasurer Jim Chalmers trumpeted a 0.2 per cent increase in GDP for the quarter not adjusted for population – and 1.3 per cent for the year as an achievement.

‘Today’s national accounts show that our economy continues to grow in the face of substantial economic headwinds at home and abroad,’ he said.

‘While overall growth in the Australian economy remains subdued, the private sector recovery we have planned and prepared for is gradually taking hold.

‘With all the uncertainty in the world, any growth is a decent outcome.’

Australia is not in a technical recession, where GDP contracts for two consecutive quarters, but the latest figures reflect an entrenched malaise in the economy.

The 1.3 per cent  annual growth pace is well below the long-run average of three per cent, despite Australia pump priming the economy with rapid population growth to drive economic activity and consumer spending. 

‘This risk has been exacerbated by global uncertainties relating to US trade policy which has weighed on confidence and the willingness to invest and spend,’ Mr Bustamante said.

‘Without a material pick-up in private demand the economy could be set for a period of subdued growth.’

Oxford Economics lead economist Ben Udy said weak economic activity could see the Reserve Bank cut interest rates again on July 8, even though June quarter inflation data isn’t due for release until the end of next month.

‘The RBA will be watching closely for further signs that the weakness in activity – if that evidence continues to rack up, the RBA may opt to cut rates again in July, a little sooner than our current forecasts suggest,’ he said.

The futures market sees the Reserve Bank cutting interest rates three more times, from an existing level of 3.85 per cent, following relief in May, to 3.1 per cent by the end of 2025.

This would take the cash rate back to where it was in February 2023, following eight interest rate rises in 2022.

‘The economy needs much more monetary easing, especially now the threat of inflation is easing and the Trump Administration’s initial policy impact on the global economy has not even fully shown up in the economic data,’ Ms Murphy said.

‘Had the Reserve Bank been able to observe the softness of the economy and the fall in inflation in the March quarter, it is likely the interest rate cutting cycle would have started sooner.’

Australia’s weaker economic activity also coincided with state governments scaling back their spending, with Queensland’s $1,000 annual electricity rebates expiring at the end of June.

This meant government spending was flat after nine consecutive quarters of growth.

Household consumer spending was one of the few areas where spending grew, with the Australian Bureau of Statistics noting this occurred as a result of the federal government’s $75 quarterly electricity rebates – adding up to $300 a year until the end of 2025.

Essential spending rose 0.4 per cent, thanks to a 10.2 per cent increase in electricity, and gas expenditure ‘from increased demand for electricity usage due to warmer than average summer conditions as well as reduced electricity bill relief payments to households’.