Our economic outlook for Australia
July 23, 2025
Uncertainty, weak growth warrant a dovish central bank
“The Reserve Bank of Australia is cautiously dovish amid slow disinflation progress and downside risks related to heightened uncertainty.”
Grant Feng,
Vanguard Senior Economist
While U.S. trade policy uncertainty is likely to weigh on Australian business confidence, downside risks to domestic activity are likely to be limited because of Australia’s low direct U.S. tariff exposure, commodities accounting for a high share of exports, and better-than-expected U.S.-China trade developments. We expect the Australian economy to grow by around 2% over 2025, with policy easing partly offsetting the impact of uncertainty.
We anticipate that inflation will stay within the 2%–3% band targeted by the Reserve Bank of Australia (RBA), though likely in the upper part of that band, at least in the near term. Supply-side weakness, especially lackluster productivity growth, will continue to hold back progress on disinflation. Additionally, a tight labor market will likely continue to exert upward pressure on unit labor costs.
Modest domestic growth amid heightened global uncertainty is likely to weigh on consumer and business confidence. We expect a cautiously dovish RBA to cut its interest rate target from the current 3.85% to 3.35% by the end of the year.
Australia economic forecasts
Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2025. Trimmed mean inflation is the year-over-year change in the Consumer Price Index, excluding items at the extremes, as of the fourth-quarter 2025 reading. Monetary policy is the Reserve Bank of Australia’s year-end cash rate target.
Source: Vanguard.
Note: All investing is subject to risk, including the possible loss of the money you invest.