Last updated: August 22nd, 2025
EY Oceania’s Chief Economist, Cherelle Murphy, is worried about Australia’s economy. The reason? Latest gross domestic product (GDP) data.
“The Australian economy breathed a little easier towards the end of 2024, with slightly happier households, strong government spending and a pick-up in exports,” she said.
Public investment has fallen. Business investment remains low.
Productivity is disappointing, and Trump’s trade war is casting a deep shadow.
Key facts about how Australia is performing economically as of August 2025:
| 1.3% Annual GDP growth rate (March quarter 2024 to 2025). |
| 2.1% Headline inflation rate (June quarter 2025). |
| 3.60% Cash rate target (with the next expected cut by the RBA in November). |
| 4.3% Unemployment rate (for the June 2025 period). |
| 3.4% Wage growth (Wage Price Index for June 2024). |
Australian GDP Has Stalled.
Australia’s GDP growth took a nosedive in 2023-2024 compared to the previous level of activity:
- GDP rose 1.5% in the 2023-2024 fiscal year.
- GDP rose 3.4% in 2022-2023.
- GDP rose 3.9% in 2021-2022.
Quarterly GDP increases shrank: just 0.1% in the December 2023 quarter; 0.2% in March 2024; 0.2% in June 2024; and 0.3% in September 2024.
The December 2024 quarter saw the economy rise by 0.6%.
Important!
GDP per capita – output divided by the population, a rough gauge of average living standards – grew by just 0.1% in the December 2024 quarter after seven consecutive quarters of falls.
In June 2025, when the latest National Accounts data was released by the ABS, it showed GDP growth has slowed again — it rose just 0.2% for the quarter.
Government spending had flattened (-0.3%) and net trade detracted from GDP growth due to fewer exports.
And spending by Aussie households is on the rise: consumption grew by 0.4%.
Both the Reserve Bank of Australia (RBA) and the Treasury Department are forecasting a gradual pick-up in GDP growth out to 2026:
- The RBA projects year-average growth of 1.6% in 2025 and 2.1% in 2026.
- Treasury predicted a 2.25% change to GDP in 2025-2026.
However, the RBA’s outlook for GDP growth has been revised downwards since its last forecast. It was originally expecting 1.9% growth this year and 2.2% in 2026.
(Related: 7 Best Crypto Exchanges In Australia).
The downgrade is attributed to persistently weak productivity.
HSBC chief economist Paul Bloxham said productivity’s stagnation meant that Aussies shouldn’t expect the economy to grow much faster than it currently is.
Will The RBA Keep Slashing Interest Rates?
The price of goods and services is rising at a much slower rate.
- CPI rose 0.7% in the June 2025 quarter.
- It rose 0.9% in the March 2025 quarter.
That meant there was a 2.1% annual change in the Consumer Price Index (CPI) from June quarter 2024 to June quarter 2025.
Important!
Trimmed mean inflation, which the RBA prefers as a measure of inflation, fell within the target range for the first time in three years in Q1, and continued to decline in Q2 2025 to sit at 2.7%.
Although it surprised most by leaving rates on hold in July, the RBA satisfied market expectations with a 0.25% cut when it met in August.
Financial markets and many economists have pencilled in at least one more rate cut by the RBA over the remainder of 2025.
Commbank senior economist Belinda Allen said they see a cut coming in November to take the cash rate to 3.35%, but it’s not a certainty.
Betashares Chief Economist David Bassanese thinks the RBA will hold when they next meet in September, because they’ll be keen to wait for the next CPI print due October 29, 2025.
(Related: Will Inflation Drop To 2.5% In 2025?)
He agreed that increased unemployment could be a trigger for cutting sooner— for instance, if it rose to 4.5%.
Will Trump’s Tariffs Hurt The Australian Economy?
The industries that contribute the most to Australia’s GDP output include:
- Health and education 13.4%.
- Mining 12.2%.
- Finance 7.5%.
- Construction 7.5%.
- Manufacturing 5.9%.
In terms of exports, resources (58.7%), services (20.3%), and rural and manufactured goods make up the highest share of international trade.
We’re dependent on global demand and therefore the prosperity of our global trading partners, especially China, Japan, Korea, and India.
Although Australia attracted the lowest possible rate of 10% as US President Donald Trump’s enacted sweeping tariffs in August, our biggest export markets weren’t so lucky.
- China was hit with tariffs of 30%, but they could potentially go as high as 145% depending on ongoing negotiations.
- Japan is currently facing a 15% blanket tariff down from earlier threats of 25%, with Japan agreeing to a number of US investments.
The average effective US tariff rate is now close to 20%, the highest its been in a century.
Data that’s emerged since the tariffs started, show manufacturing and factory activity across China and Japan slumped.
Indirect risks abound for several Australia’s industries focused on exporting as these US tariffs, and retaliatory tariffs, take hold.
The potential harm to our economy is real and has had political ramifications.
Did You Know?
A perceived connection to the Trump-led US conservatives is seen as one factor in the Liberal Party’s decline in popularity and loss in Australia’s federal election on 3rd May.
Government Spending Is Out Of Control.
While we’ve avoided negative growth and a recession, some pundits have been arguing for a while that government spending is hiding serious flaws in the economy.
Government subsidies and other spending that has bolstered GDP growth include:
Above: High levels of government spending reflect an approach where “governments try to pour cash on all problems”, according to economist Christopher Joye.
- State and federal government energy bill rebates.
- Expansion of the Child Care Subsidy.
- NDIS and aged care social benefits.
- Medicare and pharmaceutical benefits scheme (PBS).
- Defence programs and training exercises.
- Increased public sector hiring.
Australia’s total government spending (across all levels of government) as a share of GDP was at its highest level since 1959, aside from a spike during the pandemic.
Australia’s economic situation could deteriorate in 2025 if global inflation accelerates.
The Australian Industry Group said in March that private sector activity remained weak.
Above: Australian manufacturing and professional services sectors have now “fallen into technical recession.”
Ai Group chief executive Innes Willox said government support was also propping up the labour market, with job creation in the private sector becoming more expensive and difficult.
(Related: What Happens In A Recession?)
How Worried Should Australians Be About National Debt?
An economic outlook released by Treasury in April, ahead of the federal election shows that Australia’s economy has:
- An expected deficit to the tune of $27.9 billion in 2024-25, which is 1% of GDP.
- Gross debt of $940 billion in 2024-25, which is 33.7% of GDP.
Debt-to-GDP ratio gives you a sense of how sustainable a government’s finances are – anything over 60% is considered high.
Australia’s is below 60% and lower than many other major economies.
Above: IMF data shows Australia has a relatively low debt burden compared to other advanced economies.
Independent economist Saul Eslake said the real budget problem being faced by the Australian Government was an increasing percentage of government spending as a share of GDP over the coming decade, driven by:
- Demand from the electorate to support health, aged care, disability and child care needs.
- Bi-partisan consensus on the need to spend more on defence.
- Increasing net debt, which will require spending more on interest payments.
Servicing debt is a problem for nations worldwide.
Public debt reached a record US$97 trillion in 2023 and about two-thirds of that is owed by developed countries including the US, Japan and Germany.
Important!
A higher debt-to-GDP ratio indicates a country would have greater difficulty in covering its debts based on what it produces. That threatens economic stability if shocks occur, and servicing debts can also limit growth.
By contrast with Australia, debt levels in the US are forecast to surpass the country’s World War II-era peak.
Bloomberg reports the odds of ‘debt crisis’ in the US are exacerbated by increased threats to its institutions and fiscal trajectory.
Investment guru Ray Dalio warned in March 2025 that such a debt crisis was imminent as the US’ debt-to-GDP ratio exceeded 122%, which he said could lead to “shocking developments” to deal with its debt.
As of July, the situation hadn’t improved in Dalio’s view.
That wouldn’t be good news for global growth.
Will The Australian Economy Withstand Future Shocks?
Australia’s economy has experienced a long period of prosperity and is seen as relatively strong — with a good track record of responding well as global economic conditions change.
A global slowdown is predicted in 2025.
- The OECD revised its forecast for global growth from 3.1% to 2.9% in June — with worsening trade conditions and greater uncertainty weighing on economies.
- The IMF forecasts global growth of 3.0% in 2025. It had previously slashed its forecast of Australia’s growth (from 2.1% to 1.6%), but it was revised upwards in July to 1.8%.
Our ability to grow and adapt may be tested in 2025, depending on how the trade war, geopolitical unrest, and other macroeconomic headwinds play out.
Jody
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