Our economic outlook for Australia

Australia’s economic challenge lies in its constrained supply side and weak productivity growth, which have lowered the economy’s potential growth rate. Consequently, even a modest rebound in GDP growth of 1.8% year over year in the second quarter has been sufficient to stall the disinflationary momentum observed earlier in the year. This is reflected in the reemergence of inflation pressure. Headline inflation rose to 3.2% year over year in the third quarter, the highest since mid-2024. Trimmed mean inflation also surprised to the upside, increasing to 3.0% year over year, at the upper bound of the target range set by the Reserve Bank of Australia (RBA).

Labor market conditions remain tight, although there are signs of softening. The unemployment rate edged up to 4.5% in September, its highest level in nearly four years. Despite this increase, unemployment remains low by historical standards and continues to reflect a relatively robust labor market.

Given that the economy appears to be operating near its full capacity, and with core inflation rising, we now see limited scope for further rate cuts. The RBA is likely to place greater emphasis on its price-stability mandate amid mounting evidence that disinflation is stalling.