Australia’s economy grew at its fastest annual rate in almost three years in the December quarter, rising 2.6%, although this is still modest growth by historical standards.

Gross domestic product (GDP) for the quarter rose 0.8%, picking up from 0.5% in the September quarter, according to the Australian Bureau of Statistics. Both private-sector and government spending contributed to growth.

But the report predates the latest conflict in the Middle East. The economy now faces the challenge of higher petrol prices and geopolitical uncertainty, which could slow future growth.

Treasurer Jim Chalmers said the numbers were encouraging at a time of “intense global economic volatility”.

The combination of a possible slowing in economic growth and inflation above the Reserve Bank of Australia’s target band makes its next move on interest rates especially tricky.

What areas of the economy are growing most?

Household spending grew by 0.3% in the quarter, and by 2.4% through the year. At the same time, people were saving more of their income. The household saving ratio increased to 6.9%, up from 6.1% in the September quarter. It is now at its highest level since the September quarter 2022.

Government spending grew by 0.9%; 1.0% by state and local governments, 0.8% by the Commonwealth. State spending was the main driver, reflecting electricity........

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