Out of the crosshairs, but not out of the woods in Australia

Australia’s growth has stalled and the outlook has dimmed. The economy crawled in early 2025, growing just 0.2% q/q in Q1. And there’s little evidence it will get out of its funk quickly. We now expect GDP growth of just 1.5% in 2025, down from our 1.8% forecast in May.

• Households are holding back. Years of high inflation have battered real wages, and even as prices stabilise, families remain in saving mode. Uncertainty – from global tensions and tariff threats – is keeping consumers cautious and delaying any rebound in discretionary spending.

• Businesses are also sitting on their hands. Investment in machinery and equipment is down, and confidence has taken a hit amid trade uncertainty, high input costs, and lower mining profits. Many are delaying major decisions until the global outlook steadies.

• Labour market strength is fading. Unemployment remains low at around 4.1%, but early cracks are emerging. Employers are trimming hours, and underemployment is creeping up. The next step is for employers to temper hiring, pushing unemployment to around 4.5% by the end of the year. Still, we don’t expect a sizable uptick in layoffs.