Q4 2024 – Australian Economic Overview
January 20th 2025 | , Urban Property Australia
The combination of higher interest rates, cost-of-living pressures and weaker global economic conditions has caused the Australian economy to grow more slowly over the past year than initially expected. Despite this, Australia has still outperformed many advanced economies during this difficult economic period and is on track for a soft landing.
While global and domestic economic pressures have weighed on growth over the past year, the Australian economy is expected to regain some momentum over the course of 2025. Growth in Australia is expected to increase from 1.4% in the year to June 2024 to 1.75% in the 12 months to June 2025 and 2.25% in the year to June 2026.
Over the last year, consumption growth was the weakest in around three decades (outside of the pandemic and GFC). Households have cut back discretionary spending after an initial post-pandemic adjustment and also curtailed savings to manage cost-of-living pressures. Consumption growth is expected to pick up gradually, driven by a recovery in real household disposable incomes supported by moderating inflation, continuing employment and wage growth.
Inflation has moderated substantially from its peak of 7.8%in 2022. Headline inflation was 2.3% in November 2024 with the Reserve Bank’s “trimmed mean” measure of underlying inflation fell falling 3.5% to 3.2% which may lead the Reserve Bank to cut interest rates in coming month.

Business investment has remained resilient, assisted by strong business balance sheets, elevated capacity utilisation and resilient sentiment. While growth is forecast to moderate over 2025 and 2026, the level of investment activity is expected to remain at levels not experienced since the early 2010s.
Dwelling investment contracted last year due to elevated construction and financing costs and constraints in the availability of labour in the residential construction sector. However, new home construction should support a pick-up in dwelling investment over the next three years as the combination of strong demand, easing inflation in construction costs and Government support should underpin an expansion in activity.
While growth in public demand has been below the five-year pre-pandemic average, more recently, state and local government spending has driven the majority of the growth in public final demand.
Australia’s labour market has remained resilient despite the slowdown in economic activity and is well-positioned to preserve much of the recent gains in employment as inflation continues to moderate. Over a million jobs have been created in the economy since the middle of 2022. Employment is expected to continue to grow, albeit at a more moderate pace. Employment growth has eased in industries most exposed to the household sector but there has been continued demand for labour in health and aged care services.
There are signs that labour market conditions are gradually easing, particularly in the retail and hospitality sectors that are more exposed to soft household demand. The unemployment rate has recently stabilised around 4% and is forecast to gradually rise to peak at 4.5% by mid-2025 (which is still low by historical standards).
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