The Australian economy continues to show surprising strength and resilience in a world of growing tensions. A lower cash rate, inflation continuing to track down as expected, and higher population growth has resulted in a slight revision upwards in our macroeconomic forecasts.

Australian overview

Massive population growth staves off economic contraction.

  • Economic activity in Australia continues to weaken as the year progresses, with growth in domestic demand during the June quarter 2023 largely being driven by public sector investment, while Gross National Expenditure (GNE) fell once the wind down in inventories was accounted for by the Statistician.
  • While economic activity has been weak, this fall in GDP per capita is reflecting the extraordinary levels of population growth via overseas migration that has been happening.  Australia’s population has been estimated to have increased by nearly 630,000 people over the year to 30 June 2023: an increase of 2.4 percent.  This population growth has underpinned consumption and investment and has provided the government large volumes of unplanned tax revenues allowing a reversal of fortunes in budget outcomes. 
  • While inflation has been tracking down since its peak in the December quarter 2022, it remains too high and continues to be at the forefront of the RBA’s decision making, leading to a divided market expectation regarding the RBA’s next move.

Global landscape

Inflation may have peaked but upside risks remain, which could make the monetary policy tightening task more challenging.

  • The tightening of monetary policy across most developed countries over the past year, in order to contain inflation, is now resulting in the global economy growing at below-trend levels. The world economy is expected to grow over the next two years at the slowest levels since the Global Financial Crisis, excluding the pandemic years themselves.
  • The impact of geopolitical factors means the world economy is unlikely to return to pre-pandemic economic growth trends in the near term.  Global growth is now expected to be around 3 percent in 2023, then dropping slightly to be in the high-2 percent range in 2024.  
  • Global headline inflation remains well above target levels but is on a sharp downwards trajectory - falling from a peak of 11.6 percent in the middle of 2022 to about 6 percent at the end of this year, to below 5 percent by the end of next.  Core inflation has also dropped, but not by as much – as food and energy price reductions have been the primary drivers of the fall in headline inflation.   


Jun-25 Dec-25
GDP (real) 3.7% 3.3% 1.9% 1.7% 2.2% 2.5% 2.5%
Inflation* 7.8% 6.1% 5.1% 3.9% 2.5% 3.0% 3.2%
Unemployment* 3.5% 3.6% 3.7% 4.1% 4.4% 4.4% 4.5%
AUD/USD* 0.66 0.66 0.65 0.69 0.69 0.70 0.70

*values at end of period

Full details about the Australian economic conditions and forecasts can be found in KPMG's Australian Economic and Outlook: Q3 2023.

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