The Australian economy has shown resilience throughout 2024, but as the year comes to a close, questions loom about what lies ahead in 2025. With steady job growth, anticipated interest rate cuts, and ongoing challenges, businesses, policymakers, and households alike are bracing themselves for what’s to come.
From employment rates to tax cuts, and inflation to private investment, this article explores the factors shaping Australia’s economy and outlines both opportunities and challenges for the year ahead.
Jobs Aplenty – For Now
One of the most celebrated aspects of Australia’s economy in 2024 has been its labour market. Since the Albanese government came to power, over one million jobs have been created. Unsurprisingly, this achievement has become a focal point of their pre-election narrative.
Critics, however, have been quick to note that a significant portion of these job gains have occurred in the “non-market sector,” which is often funded by public expenditure. Nevertheless, job growth remains a beacon of positivity in an otherwise complex economic landscape.
According to the government’s mid-year economic outlook (MYEFO), employment growth for this fiscal year has been revised upwards to a robust 1.75%, an increase from the 0.75% initially forecast in May. Despite the positive trends, it’s worth noting that December traditionally brings a decline in full-time jobs—a pattern evidenced by the 106,600 jobs lost during the same time last year.
Unemployment remains low, sitting at 3.9%, while underemployment has reached a 19-month low of 6.1%. However, as businesses face looming uncertainties, the current labour market buoyancy may not hold indefinitely.
Economic Expansion Amid High Interest Rates
Amidst the steepest interest rate hikes in decades, Australia has managed to avoid a recession—a feat that has surprised many economists.
A key factor in this resilience has been the country’s rising population. Although population growth has added pressure to housing demand, the benefits—including bolstered labour supply and increased consumer spending—have largely offset these challenges.
Government spending has also played a pivotal role in propping up the economy. Initially, the May budget forecasted public demand growth of 1.5%, but subsequent revisions have more than doubled this figure to 3.75%. Without this increased expenditure, Australia’s economic outlook could have been much bleaker, with skyrocketing bankruptcies and widespread job losses.
Still, insolvencies are on the rise among firms such as Qenos and regional airline Rex, alongside notable workforce reductions at well-recognised companies like CBA and Telstra. The current rate environment, stuck at its highest in 13 years, continues to strain businesses and individuals alike.
Tax Cuts Arrive Just in Time
At the start of 2024, the government faced mounting calls to amend the Stage 3 tax cuts to favour lower-income earners. These modifications were eventually implemented, triggering a mix of praise and criticism.
While some feared the changes might add to inflationary pressures, the Reserve Bank of Australia (RBA) had already factored in the extra $20 billion demand injection. Meanwhile, the cuts provided much-needed breathing room for households, allowing them to reduce their mortgage burdens slightly during the September quarter.
Despite high debt payments, the RBA has expressed confidence in the capacity of most households to manage their financial responsibilities, even if elevated inflation and interest rates persist into 2025.
Real Wages and Household Wealth See Growth
One surprising bright spot in 2024 has been the steady growth of real wages. Wage growth has consistently outpaced headline inflation for the past year, with the labour market’s tight conditions ensuring this trend continues into 2025.
MYEFO’s revised forecasts predict wage growth of 3% by June 2024 and 3.25% by the following year, narrowly outpacing the CPI, which is expected to grow at 2.75% during this period. The RBA’s current projections also align with this outlook, maintaining a positive trend for workers.
Household wealth has also shown resilience, with the Australian Bureau of Statistics reporting an impressive 10% rise, bringing total household assets to $16.9 trillion by September. This growth has provided a sense of economic stability, but it masks concerning trends in productivity and broader economic output.
Challenges in Private Investment
Private investment has lagged in recent months, signalling challenges for long-term economic growth. MYEFO slashed expectations for private demand growth, lowering it from the 1.75% forecasted earlier to just 1% for 2024-25.
While government spending has stepped in to fill some gaps, this approach is unsustainable as states like Victoria begin to pull back outlays. Weak productivity growth and faltering private investment leave Australia vulnerable as the economy transitions into the new year.
Promising signs are beginning to emerge, however. Westpac’s recent survey with the Australian Chamber of Commerce and Industry revealed improving sentiments among manufacturers, with future expectations reaching their highest levels since September 2022. Combine this with the increasing likelihood of RBA rate cuts—odds suggest two cuts by mid-2025—and conditions may improve for businesses looking to invest.
Factors to Watch in 2025
The Australian economy faces a range of challenges that could test its resilience in 2025. Climate-related risks loom large, with extreme weather events threatening both urban and regional infrastructure. Ageing coal-fired power plants present additional vulnerabilities, particularly during heatwaves and cold snaps.
Global factors also add to the uncertainty. A potential Trump administration, a slowdown in China’s economy, and escalating tensions in regions such as the Middle East and Eastern Europe could create significant economic headwinds. Domestically, a weaker Australian dollar could complicate the RBA’s plans to lower interest rates.
Despite these challenges, there are reasons for cautious optimism. Interest rate cuts could stimulate private investment and ease pressure on households. Additionally, Australia’s labour market strength and rising wages provide a solid foundation for economic stability heading into an uncertain year.
Navigating an Uncertain Future
While Australia’s economy sits on the brink of change, both positive and negative indicators are at play. The outlook for 2025 will depend on the balance between these factors and the ability of policymakers, businesses, and individuals to adapt to evolving challenges.
From high interest rates to tax cuts, and climate risks to global geopolitics, the road ahead is anything but straightforward. However, with careful navigation and resilience, Australia is poised to weather the uncertain times and move towards growth.
Source
Explore more entrepreneurial insights and success stories at Inspirepreneur, your go-to magazine for business innovation and leadership.
