Our economic outlook for Australia
September 08, 2025
Solid growth confirms private sector recovery
“Policy support is clearly acting as a catalyst, and we expect the recovery to broaden in coming quarters.”
Grant Feng,
Vanguard Senior Economist
Australia’s economy grew by 0.6% in the second quarter, a solid print that confirms a private sector recovery from the very soft conditions of the past two years. Policy support is clearly acting as a catalyst, and we expect the recovery to broaden in coming quarters as the lagged impact of rate cuts flows through the economy. We maintain our 2025 forecast for full-year growth of real GDP at 2%. However, risks tilt toward the downside because weak productivity growth continues to restrict the effect of monetary policy easing.
A pickup in consumer spending is underway against the backdrop of rate cuts, gradually falling inflation, and a related increase in real household disposable income. Meanwhile, supply-side constraints remain. As weak productivity is coupled with solid wage growth, unit labor costs remain too high for the Reserve Bank of Australia to sustainably achieve its 2%–3% inflation target. Given a tight labor market as well, Australia’s disinflation process is likely to be slow.
A continued normalization in monetary policy will be required to ensure a sustainable rebalancing in growth toward the private sector. We expect one further quarter-point rate cut this year, to 3.35%.
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.
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