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Australian Outlook

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Growth

  • The Australian economy is not immune to global developments but is well-positioned to outperform most of its developed economy peers.
  • The economy gained momentum in the second half of 2024 with tax cuts and cost-of-living relief supporting incomes and spending. However, it hit a speed bump in Q1 2025, growing by just 0.2%.
  • While disposable incomes continue to recover, consumers remain price-sensitive, delaying spending until prices are discounted during promotional periods. Additional monetary easing over 2025 will allow household consumption to improve more meaningfully.
  • Despite weakness in Q1, government spending will be an ongoing support to the economy in 2025/26.
  • Headwinds from the global economy will weigh on the Australian economy this year, keeping growth below trend. As trade tensions ease into 2026, economic growth will accelerate toward trend.

Inflation

  • Inflation has slowed significantly since its peak in 2022, with slower wage growth and falling goods prices driving a fall in underlying inflation to within the RBA’s target band.
  • We expect underlying inflation to remain near the midpoint of the RBA’s target range. A modest recovery in productivity will reduce unit labour cost growth and services inflation in the year ahead.
  • Australia will also benefit from lower goods prices as China diverts products away from the US.

Monetary policy

  • Slower inflation allowed the RBA to cut cash rates by 50bps this year, with the latest cut being in May.
  • We expect two more 25bp rate cuts this year to 3.35% as downside risks from the global slowdown weigh on the modest recovery underway in Australia.
  • The easing cycle will take rates into mildly expansionary territory.

 

Australian Outlook highlights:

 

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

A re-escalation in the global trade war would weigh more heavily on the domestic recovery

 

Figure 1: Australia - Real GDP growth (% annual average)Source: ABS, QIC; Note: Red columns denotes QIC forecasts

 

Trimmed mean inflation is expected to remain firmly within the RBA target band

But headline inflation moves back to 3% as electricity rebates end

 

Figure 2: Australia - CPI Inflation (% y/y)Source: ABS, QIC. Note: Grey shading denotes QIC forecasts

 

The RBA has cut the cash rate by 50bps this year to 3.85%

A further moderation in inflation should allow for two more rate cuts this year

 

Figure 3: Australia - RBA official cash rate (%)Source: LSEG, ASX, QIC. Note: Red line represents QIC forecasts

 

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Australian Outlook

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