Economic Overview

Prior to the COVID-19-led crisis, the Australian economy experienced 27 years of uninterrupted economic growth. It was the only OECD country that did not enter into recession during the financial crisis of 2007-2008, holding one of the highest growth rates of the developed world. However, the economy showed resilience and returned to growth in recent years. In 2024, Australia’s GDP growth slowed but remained in positive territory (+1.2%, from 2% one year earlier). Strong public demand supported economic activity, while private business investment remained resilient. However, private dwelling investment contracted, and net exports weakened as softer global commodity demand offset increases in tourist arrivals and international students. As per the IMF outlook, Australia's GDP growth is projected to rise to 2.1% in 2025 and 2.2% in 2026, driven by strong public demand and a rebound in private consumption.

In FY2023/24, the Commonwealth government achieved a second consecutive budget surplus through revenue windfalls and spending reprioritization. Cost-of-living measures, including the Energy Price Relief Plan, childcare subsidies, and rent assistance, eased CPI pressures. However, the consolidated fiscal deficit widened by 0.1% of GDP due to slower state-level consolidation and falling commodity prices. Despite a slight expansion in the FY2024/25 budget, authorities remain committed to prudent medium-term fiscal policies. After achieving surpluses in 2023–2024, Australia's budget is set to return to deficit in 2024–2025. The decline is driven by rising costs for programs such as cost-of-living relief (e.g., tax cuts, energy bill support), health services, energy transition initiatives under the Future Made in Australia package, and record defence spending. Slower revenue growth (+0.9%) compared to spending (+6.3%) also contributes to the shortfall. The government projects ongoing deficits through 2027–2028, driven by rising interest payments on debt, defence, and aged care, leading to increased public debt. In fact, the debt-to-GDP ratio reached an estimated 49.3% last year, with a further 0.3 percentage point increase expected in 2025, according to the IMF. Rising fiscal costs from aged care and the National Disability Insurance Scheme remain a risk, though efforts to contain them are underway. Inflation stood at 3.3% last year, down from 5% in 2023. Lower energy costs and stable commodity prices should drive inflation down over the forecast horizon, but high rent and housing prices may slow disinflation.

Australia’s labour market remained resilient during monetary tightening, easing gradually with strong job creation. Unemployment rose to 4.2% in 2024, still below pre-pandemic levels. Migration inflows and record-high participation boosted labor supply, while vacancies declined. Nominal wage growth peaked at 4.2% y/y in Q4 2023, lagging other advanced economies due to delayed adjustments in award and collective agreements. Wage growth remains high in some service sectors, driven by labour shortages and adding to price pressures. A gradual softening of labour market conditions is expected through 2025–26, with unemployment rising modestly to around 4.5% (IMF). In general, Australians enjoy a high standard of living, with GDP per capita (PPP) estimated at USD 71,309 in 2024 by the IMF. Nevertheless, according to the Council of Social Services’ “2023 Poverty in Australia Snapshot”, 3.3 million people (13.4% of the population) live below the poverty line of 50% of median income, including 761,000 children (16.6%).

Foreign Trade

Australia is very open to international trade, which represents 49% of its GDP (World Bank). According to official figures, the country’s goods and services exports were led by iron ore & concentrates in 2023 (20.3% of the total), followed by coal (15.3%), natural gas (11.1%), education-related travel services (7.1%), and gold (4.2%). On the other hand, imports mostly comprised refined petroleum (8.9%), personal travel (excluding education-related) services (6.6%), passenger motor vehicles (6.4%), goods vehicles (3.1%), telecom equipment & parts (3%), and freight transport services (3%).

Australia’s main export partners in 2023 were China (32.6%), Japan (13.4%), South Korea (6.5%), India (5.3%), the U.S. (5%), and Taiwan (3.5%). The top five importing partners for Australia were China (18.9%), the U.S. (11.4%), Japan (5.4%), South Korea (4.8%), and Singapore (4.2% - data Australian Bureau of Statistics). Structurally, Australian foreign trade is highly dependent on the Chinese economic situation and the country's diplomatic relations with China. The EU is Australia's second-largest trading partner, and negotiations for a free trade agreement began in 2018. However, talks stalled in October 2023 after five years of negotiations. Following the deadlock, Brussels and Canberra shifted focus to critical raw materials. In May 2024, they signed a memorandum of understanding to enhance cooperation on sustainable critical and strategic minerals, crucial for global trade and the EU’s green and digital transitions.  On the 15th of November 2020, Australia also signed the Regional Comprehensive Economic Partnership (RCEP) with 14 other Indo-Pacific countries. This free trade agreement is the largest trade deal in history, covering 30% of the global economy. It includes the Association of Southeast Asian Nations (ASEAN: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and ASEAN’s free trade agreement partners (Australia, China, India, Japan, New Zealand and the Republic of Korea). The RCEP covers goods, services, investment, economic and technical cooperation. It also creates new rules for electronic commerce, intellectual property, government procurement, competition, and small and medium-sized enterprises.

The country's trade balance was characterised by a structural deficit until 2007, but since then the country has been alternating between periods of surplus and deficit. In 2023, Australia exported USD 370.8 billion in goods and USD 75.3 billion in services (-10.1% and +44.6% y-o-y, respectively); whereas imports stood at USD 287.7 billion for goods and USD 74.8 billion for services (-6.9% and +12.5%, respectively – data WTO). The overall trade balance was estimated to be positive by 4.4% of GDP by the World Bank.