Growth in gross domestic product was down from the rapid 0.9 per cent growth recorded in the December quarter, Australian Bureau of Statistics data showed on Wednesday.
The result was largely in line with the consensus of forecasters.
Annual GDP growth was 2.5 per cent, below Reserve Bank's May forecast of 2.6 per cent.
"Economic growth slowed in the March quarter, with modest household and public sector expenditure as well as cyclone disruptions to mining and export activities," ABS head of national accounts Grace Kim said.
Net trade detracted 0.8 percentage points from GDP growth.
Imports surged on the back of higher fuel prices and the AI boom, resulting in Australia's first trade deficit since December 2017.
The data centre build-out, which drove a massive increase in business investment, is highly reliant on imported server racks, while increased use of AI software also fuelled a rise in service imports.
The data only partially showed the effects of the RBA's three rate hikes in 2026 and the flow-on effects of the Strait of Hormuz blockade, said NAB chief economist Sally Auld.
But it would provide a baseline for where the economy was before the Middle East conflict and the budget tax changes hit sentiment in the housing market, she said.
"Growth is clearly moderating, which would give the Reserve Bank confidence that they're on track in terms of getting a better balance between aggregate demand and aggregate supply," Dr Auld told AAP ahead of the release.
As an incipient downturn in Sydney and Melbourne spreads to other markets, it could further slow the economy and make the RBA's job of tackling inflation somewhat easier.
Ahead of the release, rates markets were fully priced in for an RBA hold at its next meeting in June.
But market pricing suggested a four in five chance of another rate hike by the end of the year.
Treasurer Jim Chalmers said it was a very solid result in the circumstances.
"This is the equal fastest pace of annual growth in almost three years," he said in a statement.
"It shows how resilient our economy is at a time of substantial global economic volatility."
8°C