GDP growth sinks again
In the September quarter of 2024, Australia’s real GDP growth rate fell to a lowly 0.8 % p.a.
The general outlook for the Australian economy is weak, with household consumption, industry output and business investment all well below normal levels.
A significant uptick in government spending – which rose 5.7% in real terms in 2023-24 – has kept the economy afloat. But the private sector is in recession, having now posted two quarters of negative growth.
Forecasters expect growth to slowly improve over the next two years, rising to just over 2.0% p.a. by 2026.
CPI declines but core inflation still above target
Headline CPI dropped to 2.4% p.a. in December, marking the lowest rate of consumer inflation since March 2021.
Household energy subsidies in the 2024-25 budget lowered headline CPI into the target band, but other measures indicate inflation is still too high.
Trimmed mean inflation (which strips out the energy subsidies) fell to 3.2%, while the Producer Price Index (for industrial prices) is at 3.7%. These are more accurate measures of underlying consumer and industrial prices.
The RBA forecasts that headline CPI will grow again in late 2025 when household energy subsidies expire.
Investment levels to slow in 2024-25
New data shows business investment levels will continue to slow in the coming financial year.
Following the pandemic there was an investment boom, with real private business investment levels surging by 7.2% in the 2022-23 financial year.
As the economy has slowed, so too has business investment, with the growth rate easing to just 3.3% in 2023-24.
Forecasts anticipate a further slowdown due to weak business conditions, with expectations ranging from 1 to 2% growth in business investment across 2024-25.
Market sectors experienced sharper decline
Industry value-add grew by an anaemic 1.1% per annum in the September quarter.
The non-market sector, which comprises government-linked industries, saw a growth of 2.5%, while the market sector industries only grew by 0.8%.
Output in industrial and consumer-oriented sectors were the poorest performers, reflecting weak business conditions for industry and depressed household spending.
The data indicates that many parts of the private sector are experiencing conditions similar to a recession. It is only in government-linked industries where there is appreciable growth.
Growing reliance on government for jobs
In 2024, Australia's labour market slowed but did not stall, with 470,000 net jobs created by the third quarter.
Notably, 85% of these jobs were created in either the public sector or non-market private sector. Employment growth in these sectors is highly dependent on increasing government spending.
In the private market sector, which accounts for two-thirds of the labour market, job creation has stalled with only 67,000 net jobs added.
This points to much weaker conditions in the private sector labour market than headline unemployment numbers suggest.
Moderate wage hike eases pressures
In the September quarter, wage growth in awards and enterprise agreements slowed significantly, returning towards the level of market-set wages.
Australia's wage growth slowed from 4.1% to 3.5% p.a. over the last year. The main driver was the Fair Work Commission's 3.75% minimum wage increase in 2024.
Following two record hikes of 5.2% and 5.75%, this brought regulated wages back towards market levels and helped ease overall wage pressures.
It also shows that the outcome of the FWC minimum wage decision in June 2025 will be one of the main factors shaping the future wages outlook.
