‘Slow Grind’ Ahead for Australia’s Economy in 2025

gross domestic product (GDP) will pick up slowly as infationary pressures ease, boosting consumer confdence and spending. “GDP growth will slowly improve as infation dissipates and interest rate cuts take effect,” Kearns said, though he cautioned against expecting a quick turnaround.

Interest Rates to Fall, But Modestly Economists anticipate the Reserve Bank of Australia (RBA) will begin cutting rates by mid-2025, most likely in May, as infation moves closer to the RBA’s target range of 2–3% annually. Independent economist Nicki Hutley supports earlier rate cuts to provide relief for stretched borrowers but warns of limited reductions.

“We might see two or three rate cuts, but borrowers shouldn’t expect substantial relief,” Hutley said.

Infation Easing into Control

Infation, which has dominated economic discourse, is expected to ease further. The latest data shows annual infation at 2.8%, its lowest level since mid2021, but underlying infation remains higher at 3.5%, above the RBA’s target. UBS chief economist George Tharenou predicts both headline and core infation will moderate in 2025, supported by government energy subsidies.

Labor Market to Soften After surprising strength in 2024, unemployment is expected to rise, reaching 4.3%, according to the RBA. Slower economic growth and reduced public sector hiring will likely ease labor market pressures, while wage growth is expected to decline from its peak.

China’s Slump Hits

Australia

China’s faltering economy remains a signifcant risk for Australia, particularly for key exports like iron ore and coal. While AMP’s Diana Mousina expects Chinese stimulus measures to support moderate growth, Hutley is less optimistic, warning of ongoing weakness in demand.

Global Volatility Looms

The return of Donald Trump as US president adds uncertainty, with proposed tariffs on China potentially impacting Australia indirectly.

Economists remain cautious but suggest

While 2025 is not expected to deliver a dramatic turnaround, some improvements are anticipated. Tax cuts could provide relief to households, and easing infation may allow for modest real wage growth. However, economists warn of continued divergence between struggling and thriving households.

“We’re waiting to see whether productivity growth can pick up,” Kearns said, adding that Australia’s economic recovery will be a slow grind.

Overall, 2025 is shaping up to be a year of cautious optimism, with challenges ahead but opportunities for gradual improvement.

Trump’s focus on market performance could temper his more extreme policies.

A Year of Cautious Optimism Economists agree 2025 will bring modest improvements, with tax cuts, easing infation, and real wage growth offering some relief. However, the slow pace of recovery means economic divergence between households is likely to persist.

“2025 won’t be transformative,” Kearns said. “But with infation easing and rates falling, we’ll see gradual improvement.”

Crisis

China’s ongoing property collapse, led by giants like Evergrande, has caused staggering economic losses, with implications that should resonate loudly in Australia. As one of our largest trading partners, China’s struggles are a stark warning about the fragility of real estate markets and the broader economy.

The Scale of China’s

The fallout from China’s property downturn is immense. A Barclays Bank report estimates the total wealth destruction at $US18 trillion ($AU29 trillion), or approximately $US60,000 per Chinese household.

This loss surpasses the US property crash of 2008 that triggered the global fnancial crisis. With 80 million vacant homes — seven times the total number of

Australian dwellings — and declining property prices, the situation remains grim.

Harvard economist Kenneth Rogoff and IMF co-author Yuanchen Yang highlight that China’s overbuilding spree has created a massive oversupply of homes and infrastructure.

Construction accounted for 31% of China’s GDP in 2021, a precarious level seen before the property collapses in Spain and Ireland.

With a declining working-age population and soaring home price-to-income ratios in cities like Beijing and Shanghai, China’s real estate market faces a bleak outlook. The ripple effects include a weakened construction sector, falling economic output, and reduced demand for raw materials, including Australian iron ore and coal.

Implications for Australia