Labour tight, but purse strings tighter in Australia

After a slow start to the year, Australia’s outlook has improved a smidge. The jobs market continues to hold its ground, while China’s more resilient near-term outlook will support key commodity exports. That recent good news trumps the bad, leading us to upgrade our 2025 forecast to 1.7%, from 1.5% in our June update. Still, lingering weakness in household spending and business investment will hold the economy below its potential – in an average year, we estimate the economy should tick over at around 2.4%.

• Momentum will build in 2026 as this year’s rate cuts are passed on to households and businesses. After a cautious pause in July, we expect the Reserve Bank of Australia (RBA) will cut rates in August and again in Q4, taking the cash rate to 3.35% by December. Those rate cuts will be particularly important for families, as years of rising prices have wiped almost a decade off the average family’s purchasing power. As household spending lifts through 2026, economy-wide growth will jump to 2.2%.

• The recovery in business investment will take longer. Tariffs cloud exporters’ sales, and softer commodity prices will still squeeze mining profits. That combination will prompt many firms to hold off on near-term investments until the global picture becomes clearer. Major state and territory infrastructure works will keep the investment pipeline ticking over in the meantime.