Australia Key Themes 2025: Inflation will be on voters’ minds

The Australian economy has endured a dour 2024, with population growth and a large expansion of public demand barely keeping the economy out of recession. Meanwhile, the private sector has contracted under the strain of tight policy settings. Yet, the economy is still operating beyond its capacity, which is keeping upward pressure on inflation.

Looking ahead, we think Australia’s growth prospects are set to improve in 2025. Lower inflation will be supportive of the growth outlook, although there is still only limited scope for policy easing.

In this report, we explore three key questions shaping Australia’s economic outlook in 2025:

• How strong will the consumer recovery be? The strength of consumption recovery will go a long way in determining GDP growth in 2025. Household spending surprised to the downside in 2024, but we think the fundamental conditions are strong. Key to this outlook is the ongoing improvement in real income growth.
• What is the outlook of public and business investment? Which sectors will drive investment in 2025? Public and business investment activities were underwhelming in 2024. Overall, the outlook is still modest for 2025, but this belies some large sectoral shifts that are underway.
• Can policymakers take their foot off the brakes? The looming federal election will present a temptation to loosen the fiscal purse strings. However, a deterioration in cyclical revenue growth will restrain any loosening in fiscal policy. We do not expect the Reserve Bank of Australia (RBA) will cut rates until at least May.

Download the full report to uncover our full analysis and forecasts for the Australian economy in 2025.