How Is The Australian Economy Doing?

When the latest data on Australia’s gross domestic product (GDP) growth was published in March, there was cause for optimism according to EY Oceania’s chief Economist Cherelle Murphy.

But 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 May 2025:

Australian GDP Has Stalled.

Australia’s GDP growth took a nosedive in 2023-2024 compared to the previous level of activity:

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%.

In March 2025, when the latest National Accounts data was released by the ABS, it showed government spending had moderated by 0.7%.

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:

Will The RBA Keep Slashing Rates?

The price of goods and services is rising at a much slower rate.

That meant there was a 2.4% annual change in the Consumer Price Index (CPI) from March quarter 2024 to March quarter 2025.

Financial markets and many economists have pencilled in 2-4 rate cuts by the RBA over the remainder of 2025.

Westpac’s Lucy Ellis said there was even an outside chance of a 35 basis point cut to 3.75% in May.

(Related: Will Inflation Drop To 2.5% In 2025?)

Economist Ivan Colhoun said the latest trimmed mean result cleared the way for a 0.25% interest rate cut at its May meeting, to bring the cash rate to 3.85%.

He argued lower-cost goods diverted from highly-tariffed countries could have a deflationary impact on Australia’s economy, opening up the possibility of a larger rate cut.

Will Trump’s Tariffs Hurt The Australian Economy?

The industries that contribute the most to Australia’s GDP output include:

In terms of exports, resources (58.7%), services (20.3%), and rural and manufactured goods make up the highest share of international trade.

We may be an island, but our economy is trade-exposed.

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 – our biggest export markets weren’t so lucky.

Data that’s emerged since the tariffs started, show manufacturing and factory activity across China and Japan slumped.

Indirect risks abound for a number of 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.

A perceived connection to the Trump-led US conservatives is seen as one factor in the Liberal Party’s decline in popularity in the lead up to 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:

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.

Above: High levels of government spending reflect an approach where “governments try to pour cash on all problems”, according to economist Christopher Joye.

Australia’s economic situation could deteriorate in 2025 if global inflation accelerates.

The Australian Industry Group said 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 slow 1.0% growth job creation in the market sector.

(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:

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:

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.

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.

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.

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