Our economic outlook for Australia
August 12, 2025
Progress on disinflation paves the way for further easing
“The Reserve Bank of Australia is cautiously dovish amid progress on disinflation and diminished uncertainty.”
Grant Feng,
Vanguard Senior Economist
First-quarter GDP growth came in weak at 0.2% quarter over quarter and 1.3% year over year. Headwinds included falling public demand after two years of strong growth and a limited upswing in private demand. We maintain our forecast for real GDP growth of 2% in 2025, though risks tilt toward the downside.
The quarter ended June 30 represented the second straight quarter that the trimmed mean Consumer Price Index fell within the 2%–3% target range set by the Reserve Bank of Australia (RBA). Previously, the measure had exceeded that level in every quarter since the end of 2021. We anticipate that inflation will moderate further.
Persistent supply-side constraints remain, however. Weak productivity and solid wage growth are keeping unit labor costs high. Combined with a tight labor market, these factors are expected to limit disinflationary momentum.
The combination of some disinflation progress and supply-side constraints is likely to result in the RBA adopting a cautiously dovish stance. After a 25-basis-point rate cut on August 12 brought the cash rate target to 3.6%, we expect one further rate cut by the end of this year. (A basis point is one-hundredth of a percentage point.)
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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