Economic activity in Australia picked up in the final quarter of the year, with GDP growing by 0.6%, surpassing market expectations and marking the strongest performance since December 2022. There remain concerns around the tightness of the labour market, geopolitical risks and trade barriers; meaning the RBA will remain cautious on further easing of the cash rate. Looking ahead, global and domestic economies face challenges, particularly from new US tariffs and retaliatory actions.
Australian overview
Australia emerged from a per capita recession with a 0.1% increase in GDP per capita for the quarter, despite being 0.7% lower over the year.
- Household spending rebounded, lifting by 0.4% after recording zero growth in the September quarter. This was driven by a mix of discretionary and essential spending, contributing 0.1 ppt each to GDP growth.
- Private demand contributed to GDP growth, through both household consumption (+0.2 ppt) and private investment (+0.1 ppt). This contrasts with the September quarter, where both channels were weak and did not contribute.
- Public demand continued to support growth, comprising of government expenditure (+0.1 ppt) and public investment (+0.1 ppt) at a much less significant amount than the previous quarter, where they added 0.3 ppt and 0.4 ppt.
Global landscape
Global growth looks weaker in 2025 and 2026. However, the global economic outlook is highly uncertain, affected by the ongoing trade war.
- Global economic growth is expected to slow to 2.9% in 2025 and 2.8% in 2026.
- Inflation has been more persistent in certain nations, with some central banks choosing to slow down their easing cycle, while others have decided to increase rates.
- The latest Global Purchasing Managers’ Index (PMI) indicated that the pace of global economic activity has been steady, with the index recording a value of 51.5 in February 2025, down from 52.6 recorded in December 2024.
Summary forecast
* Values at end of period
# Actual values
^ Forecast values
KPMG forecasts of key macroeconomic indicators
| Indicator | 2024 (actual) | 2025 (forecast) | 2026 (forecast) |
|---|---|---|---|
| Real GDP (average annual growth) | 1.0% | 2.0% | 1.8% |
| Real GDP (year-ended growth) | 1.3% | 2.0% | 1.8% |
| RBA cash rate | 4.35% | 3.6% | 3.35% |
| Headline CPI | 2.4% | 2.9% | 2.6% |
| Core CPI | 3.2% | 2.9% | 2.5% |
| AUD/USD* | 0.64 | 0.62 | 0.62 |
Full details about the Australian economic conditions and forecasts can be found in KPMG Australia's Economic and Outlook: Q1 2025.
