Australia’s Economy at a Crossroads: Inflation, Growth, and Market Pressures Define 2025 Outlook

The Reserve Bank of Australia’s recent monetary policy decisions, coupled with sluggish economic growth and persistent inflationary pressures, set the stage for critical discussions about the nation’s economic trajectory. From the RBA’s cautious approach to rate cuts to subdued GDP growth and shifting inflation dynamics, these developments highlight a delicate balancing act. Meanwhile, market movements, such as the AUDUSD’s bearish slide, reflect broader uncertainties in the financial landscape.

In its latest Statement by the Reserve Bank Board, the RBA announced that the cash rate would remain at 4.35%, with underlying inflation still elevated at 3.5%, above the 2.5% target midpoint. While inflation has declined from its 2022 peak, the Board does not expect it to sustainably reach the target range until 2026.
The Statement highlighted weak economic growth, with GDP increasing by just 0.8% annually—its slowest pace since the early 1990s outside of COVID disruptions. Although wage pressures have eased, tight labor market conditions persist, with unemployment rising to 4.1%.
The Board reiterated its commitment to returning inflation to target sustainably and noted ongoing risks, including subdued demand, weak productivity, and global uncertainties. Decisions will remain guided by data and risk assessments as the RBA balances inflation control with economic and employment stability.

The Reserve Bank of Australia (RBA) kept the cash rate steady at 4.35% for the ninth consecutive meeting, maintaining its highest level in 13 years. While the decision disappointed borrowers hoping for relief, hopes for a future rate cut grew as the RBA indicated growing confidence that inflation is easing sustainably.
The altered language in the RBA’s Statement suggested a shift from its previously hawkish stance, sparking investor optimism. However, RBA Governor Michele Bullock emphasized a data-driven approach, stating that neither a cut nor a hike was considered in this meeting.
Calls for rate cuts have intensified amid Australia’s sluggish economic growth, which slowed to an annual rate of 0.8% in the September quarter, its weakest since the early 1990s outside of COVID disruptions. While inflation has declined, underlying inflation remains above the target range, keeping the RBA cautious.

In the September 2024 quarter, Australia’s GDP grew by 0.3% (seasonally adjusted), marking the 12th consecutive quarter of growth, but annual growth slowed to 0.8%, the weakest since late 2020. Government spending and public investment drove growth, while private demand remained subdued.
The household saving-to-income ratio rose to 3.2% from 2.4%, supported by increased gross disposable income, aided by recent tax cuts and rising wages. However, household consumption stagnated, with essential spending falling due to energy relief schemes and milder weather.
Export growth, led by coal, slightly outweighed falling imports to contribute modestly to GDP. Meanwhile, public investment surged, with strong activity in infrastructure and renewable energy projects, offsetting weaker private investment in non-dwelling construction.
Tight labor market conditions persisted, with the compensation of employees rising 1.4%, driven by increased public sector wages and full-time employment gains. However, challenges like falling terms of trade, weak productivity, and global economic uncertainties continue to pressure the outlook.

In October 2024, the monthly Consumer Price Index (CPI) indicator showed annual inflation holding at 2.1%. Key drivers included significant price increases in alcohol and tobacco (+6.0%) and recreation and culture (+4.3%), while transport costs fell sharply (-2.8%), driven by a drop in automotive fuel prices (-11.5%).
Electricity prices recorded a historic 35.6% annual decline, reflecting the impact of expanded government energy relief programs. Food and non-alcoholic beverages rose 3.3%, with fruit and vegetables seeing the largest increase (+8.5%).
Housing pressures persisted, with new dwelling prices rising 4.2% annually and rents up 6.7% despite temporary relief from increased rent assistance. Meanwhile, holiday travel and accommodation costs surged 8.0% annually, reversing the base effects of a sharp drop in 2023.
Trimmed mean inflation, a measure of underlying trends, increased to 3.5%, signaling that while headline inflation has stabilized, underlying price pressures remain elevated.

Since rejecting the 0.69411 resistance level on September 30, the AUDUSD currency pair has maintained a strong downward trajectory, breaking through critical support zones. A Shooting Star candlestick pattern initially signaled the bearish reversal, setting the tone for the pair’s decline.
Adding to this, the emergence of a “Death Cross” — where the 20-period Exponential Moving Average (EMA) crossed below the 50-period EMA — confirmed the bearish sentiment, further accelerating the downtrend. A failure swing reversal at 0.66866, marked by the inability to surpass the prior peak and a subsequent breach of the 0.65111 support level, validated the sustained downward pressure.
Technical indicators continue to favor the bearish outlook. The price remains below the 20- and 50-period EMAs, the Momentum Oscillator reflects values below the neutral 100 mark, and the Relative Strength Index (RSI) hovers below the 50 thresholds, signaling continued downside potential.
Should the bearish momentum persist, traders will focus on the following support levels: 0.62871, 0.62271, and 0.61415. On the upside, resistance levels to monitor include 0.64703, 0.65269, and 0.66866.

Australia’s economic outlook remains marked by a delicate interplay of challenges and cautious optimism. The RBA’s firm stance on maintaining the cash rate underscores its focus on combating inflation, while subdued GDP growth and global uncertainties weigh on recovery prospects. Persistently high underlying inflation and tight labor market conditions add complexity to the policy landscape.
Meanwhile, the financial markets reflect these dynamics, with bearish movements in the AUDUSD signaling broader investor sentiment. As policymakers navigate these headwinds, their data-driven approach and focus on balancing inflation control with economic stability will be critical in shaping Australia’s economic trajectory into 2025.