Australia's economy just grew faster than expected. What does this mean for ASX shares?

Stronger growth, higher rates, mixed news for investors.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX shares have just been handed a piece of economic news that may finally come as a relief.

The Australian economy grew 0.4% in the June quarter.

Annual growth came in at 2.1%.

Both figures were above what economists expected.

Stronger growth is good for company earnings and yet somewhat awkward for anyone hoping interest rates stay where they are.

Smiling kid flexing his muscles.

Image source: Getty Images

What the GDP numbers actually said

The details are important here.

Household spending rose 0.4% in the June quarter, which is steady without being strong.

The household saving ratio edged up to 6.5% from 6.4%.

GDP per capita increased 0.8% across the 2025-26 financial year.

Grace Kim, the ABS head of national accounts, was measured about the result.

Economic growth remained subdued in the June quarter as households continued to behave cautiously. While increased spending and business investment occurred in pockets of the economy, imports supported much of the growth, moderating its contribution to overall GDP growth.

Why stronger growth is bad news for some ASX shares

The Reserve Bank has been waiting for evidence that the economy can absorb tighter policy, and this is it.

ANZ Group Holdings Ltd (ASX: ANZ) already expects the Reserve Bank to lift the cash rate by 25 basis points to 4.60% in November, citing persistent inflation and resilient household spending.

Australia's 10-year government bond yield has climbed to around 5.19%, its highest level in 15 years.

Higher discount rates compress the present value of every future dollar a company earns.

That is why long-duration ASX shares have struggled even as the growth data improved.

The banks are caught in the middle

Commonwealth Bank of Australia (ASX: CBA) is the clearest example of the tension.

A stronger economy means fewer bad loans, and CBA's 90-day arrears sit at just 0.73%.

A higher cash rate also widens deposit margins, which feeds directly into the 2.05% net interest margin reported in FY26.

The offset is credit growth, since home loan applications have fallen roughly 15% since the May Federal Budget.

At 24.36 times earnings and a 3.18% yield, very little of the good news is still available cheaply.

ANZ offers the same exposure on 19 times earnings with a 4.45% yield.

As a result of all of this, brokers unsurprisingly remain split on which of the major banks deserves to carry the sector premium from here.

Retail is where the real risk sits

JB Hi-Fi Ltd (ASX: JBH) is a slightly different narrative.

The company's FY26 revenue rose 4.8% to $11,064.0 million, and net profit after tax climbed 6% to $489.9 million.

The total ordinary dividend increased 22.5% to 337 cents per share.

JB Hi-Fi Australia and The Good Guys both recorded a slight dip in sales during July.

Consumer confidence fell 2.6 points to 74.9 in the latest ANZ-Roy Morgan survey.

A November rate rise would land directly on the mortgage holders who buy televisions and laptops.

Which ASX shares benefit from faster growth

Miners, energy producers and insurers all earn more when activity holds up and inflation runs a little warm.

The losers are the ASX shares valued on distant cash flows and the retailers most exposed to household budgets.

Foolish takeaway

A 0.4% quarter is not a boom.

However, it is more than enough to keep a November rate rise firmly on the table.

CBA looks fully priced for the good news, ANZ looks like better value on the same theme, and JB Hi-Fi looks cheap for understandable reasons.

I would not rebuild a portfolio around a single quarter of national accounts.

But I would take very seriously what the bond market is now saying about the cost of money.

Motley Fool contributor Mark Verhoeven has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Economy

Red percentage sign in front of a chart.
Economy

Could the RBA really hike interest rates again this month?

Another rate move is back in focus.

Read more »

Happy woman holding white house model in hand and pointing to it with a pen.
Economy

Home values just fell for a fifth straight month. Which ASX shares are most exposed?

Five months of falls, three very different exposures.

Read more »

Man and woman sitting at table with the man looking a bit puzzled at his laptop.
Economy

Could a September rate hike hurt your superannuation returns?

What a rate rise does to your balance.

Read more »

Investor scratching his head.
Economy

The RBA could hike rates in September. Which ASX shares are most at risk?

Banks and property carry the sharpest rate risk.

Read more »

Hand flipping wooden cube block to change between up and down with percentage sign symbol next to it.
Economy

Another RBA interest rate hike could be just weeks away. Here's what the big banks think

The chances of another rate hike is starting to climb.

Read more »

Surprised man looking at store receipt after shopping, symbolising inflation.
ASX Share Market News

Buying ASX shares? Here's what the latest inflation data means for interest rates

Wednesday’s inflation print had ASX share investors heading for the exit. Are interest rates really going higher?

Read more »

Shocked woman looking at supermarket receipt after shopping, symbolising inflation.
Economy

Higher for longer? Why the ASX 200 just turned negative

The ABS knows how to ruin an ASX party.

Read more »

Inflation written on cubes.
Economy

Inflation falls again, but could the RBA still raise interest rates?

Inflation eased again, but the RBA may not be done.

Read more »