Our economic outlook for Australia
June 25, 2025
Hovering uncertainty warrants a dovish central bank
“Given still-elevated levels of global uncertainty, the Reserve Bank of Australia is likely to adopt a cautiously dovish stance toward further rate cuts.”
Grant Feng,
Vanguard Senior Economist
Some easing of U.S.-China trade tensions has reduced external uncertainty and growth concerns. However, downside risks remain as there have been some disruptions in trade, and tariffs on China are still higher than they were prior to the April 2 announcement of broad U.S. tariffs on global trading partners. Moreover, weaknesses in private demand persist. Overall, we expect the Australian economy to grow 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 it is likely to be in the upper half of that range. Supply-side weakness, especially lackluster productivity growth, will continue to hold back progress on disinflation. Another hindrance is that the labor market remains tight, which will continue to exert upward pressure on unit labor costs.
Given still-elevated levels of global uncertainty, the RBA is likely to adopt a cautiously dovish stance toward further rate cuts, with the magnitude of easing expected to be mild throughout the rest 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.
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