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Australian Outlook

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Growth

  • The Australian economy has been weak, growing well below trend in 2024
  • Consumers cut back spending as they faced intense budgetary pressures, with per person real disposable incomes falling by over 10%; double the rate of the 1990/91 recession
  • But we are now likely past the trough
  • The economy will pick up gradually over 2025, with the recovery gaining traction to around a trend pace by 2026
  • Solid population growth, income tax cuts and cost-of-living relief will support the economic recovery

Inflation

  • Inflation has slowed significantly since its peak in 2022
  • Underlying inflation remains above the RBA’s target band, but is slowing, assisted by slower growth in wages and input costs
  • By the middle of 2025, underlying inflation should ease back within the RBA’s target range, though it will take longer to reach the midpoint of the target band

Monetary policy

  • Despite the weak economy, the RBA held the cash rate at 4.35% as inflation remained elevated
  • The fall in inflation will allow the RBA to deliver two 25bps rate cuts in the first half of 2025
  • The easing cycle in Australia will be modest compared to developed market economies

 

Australian Outlook highlights:

 

After weakness in 2023/24, a modest cyclical upswing is underway in Australia

Outlook more similar to the GFC slowdown than the 1999/91 recession

 

Australia - Real GDP growth (% annual average)Source: ABS, QIC; Note: Red columns represents QIC forecasts

 

Core inflation is expected to move into the RBA target band by mid'25

Headline inflation is lower in the near-term but higher when subsidies expire in H2'25

Australia - CPI inflation (% y/y)Source: ABS, QIC. Note: Grey shading represents QIC forecasts

 

Monetary policy easing is on the cards in 2025, but the easing cycle will only be shallow

Rates will be cut towards neutral as inflation slows toward target and growth recovers toward trend

Australia - RBA official cash rate (%)Source: Refinitiv, Bloomberg, QIC. Note: Red line denotes QIC forecasts

 

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Australian Outlook

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