Australian Bureau of Statistics data showed gross domestic product grew at 2.6 per cent in 2025 - the highest rate in nearly three years.
Despite the uptick in activity, economists warn the economy is not in rude health.
Given growth was not driven by productivity improvements, it indicated it would likely worsen inflation, said BDO chief economist Anders Magnusson.
"The release includes a concerning signal about productivity," he said.
"GDP per hour worked was flat in the December quarter, meaning economic growth came from Australians working more hours, not from producing more with each hour worked.
"Without productivity gains, faster growth translates into inflation, rather than sustainably higher living standards."
The Reserve Bank estimates the fastest growth rate the economy can sustain without pushing up inflation is about two per cent per annum.
The only way to increase the economy's capacity and sustainably boost living standards is with a pick-up in investment and a lift in productivity, said EY chief economist Cherelle Murphy.
"While there are signs of this, including more optimistic capital expenditure expectations, more encouragement from improved policy is needed," she said.
"The national accounts highlight the need for the government to move forward with productivity enhancing reforms in the 2026/27 budget."
While productivity grew one per cent over 2025 - higher than in the previous year - productivity and the total size of the economy were well below where their pre-pandemic trends suggested they should be, said Jonathan Kearns, chief economist at Challenger.
"And it looks like that's a gap we're not going to make up."
Dr Chalmers acknowledged the "pressing" economic challenges of inflation, productivity and global uncertainty, flagging that the budget would seek to address them.
"The budget will be very firmly focused on the inflation challenge in the near term, the longstanding productivity challenge and all of this global economic uncertainty, which is dialled up by events in the Middle East," he told reporters on Wednesday.
Although higher GDP growth will do little to allay RBA fears about inflation, the underlying details do not suggest a sustained uplift in activity.
Much of the upside surprise in the headline figure came down to volatile items like inventories, said Westpac senior economist Pat Bustamante.
Household consumption growth was soft at 0.3 per cent over the quarter, but expiring electricity rebates and weak tobacco sales muddied the waters.
Given consumers have an outsized impact on the economy, the RBA will be closely watching household spending data from January, set to be released by the ABS on Thursday, to get a sense of the underlying pulse.
