Australia’s economic trajectory for the 2024–25 financial year signals a cautious yet steady recovery. Real GDP growth is forecast to rise to 1.5%, improving from 1.4% in 2023–24, and is projected to reach 2.25% in 2025–26. This recovery will be driven primarily by a rebound in household consumption, boosted by government cost-of-living tax cuts and easing inflation. However, a fragile global environment, ongoing geopolitical tensions, and trade volatility continue to pose substantial risks.

Key Economic Indicators and Trends

GDP Growth

• Real GDP is projected to grow from 1.4% in 2023–24 to 1.5% in 2024–25 and 2.25% in 2025–26.
• Compared to other Western economies, Australia’s growth is modest but stable. For instance, the U.S. is facing downgraded growth prospects due to new tariffs, and Europe’s recovery hinges on fiscal reforms.

Inflation

• Inflation has moderated significantly from its 2022 peak.
• The Consumer Price Index (CPI) is forecast at 2.5% in 2024–25, returning to the Reserve Bank of Australia’s target band of 2–3%.
• However, inflation may temporarily rise due to the expiry of government energy rebates.

Household Tax Cuts

• The Stage 3 tax cuts are expected to lift real household disposable income, supporting consumption.
• These tax cuts are central to the Albanese government’s cost-of-living relief and may also influence voter sentiment heading into the next election.
• More detail on the specific tax thresholds and brackets would be beneficial in an appendix or visual, such as a tax comparison table.

Household Consumption

• Household spending is expected to recover gradually.
• This recovery is tied to wage growth (WPI forecast at 3% in 2024–25) and improved employment, particularly in the market sector.
• However, weak consumer confidence due to global trade tensions may weigh on this rebound.

Business Investment

• Business investment remains strong but is expected to moderate to 1.5% in 2024–25 and 2% in 2025–26, still at some of the highest levels since the 2010s.
• Investment in non-dwelling construction is slowing as the pipeline of projects contracts.
• A rebound in dwelling investment is anticipated from 2025–26 due to easing supply-side constraints and lower financing costs.

Global Headwinds and Risks

Tariff Wars and Geopolitical Tensions

• In April 2025, the U.S. imposed 10–50% tariffs on imports, prompting China’s retaliatory 34% tariffs on U.S. goods.
• These moves disrupt global trade and are expected to weigh on international investment, supply chains, and Australian exports—especially via indirect exposure through China.
• The effects could weaken business and consumer confidence in Australia.

Broader Geopolitical Instability

• Conflicts in Ukraine, Israel–Palestine, and tensions surrounding Taiwan and the South China Sea remain sources of global economic instability.
• These could further disrupt global supply chains and energy markets, feeding into inflation and commodity volatility.

Commodity and Currency Volatility

• Commodity prices, including oil, have dropped sharply. If sustained, this could reduce nominal GDP and government revenue.
• A weaker Australian dollar may drive up the cost of imports, putting upward pressure on inflation even as domestic demand remains subdued.

Labour Market and Wages

• Unemployment is expected to tick up to 4.25% by mid-2025, from 4% currently.
• Real wages grew 0.8% in 2024, and are forecast to grow 0.5% in 2024–25 and 0.25% in 2025–26.
• Employment gains have largely been driven by the non-market sector; a shift toward market sector growth is expected as the economy picks up.

Migration and Demographics

• Net Overseas Migration (NOM) continues to decline, driven by fewer arrivals and an expected rise in departures as pandemic-era visas expire.
• This trend could impact labour supply, housing demand, and overall economic growth if not managed effectively.

Conclusion

Australia’s 2024–25 economic outlook points to a fragile yet promising recovery, supported by domestic fiscal policy and a stabilising inflation environment. However, global uncertainty, rising tariffs, and geopolitical tensions pose significant downside risks. Policymakers must remain agile, particularly around trade, migration, and labour market support, to maintain stability and encourage sustained growth.