06 February 2025
Australian households and businesses should benefit from lower interest rates and improved market conditions, in what a University of South Australia economist predicts will be a year of recovery for the country.
UniSA’s Credit Union SA Chair of Economics Dr Susan Stone says global economic growth is expected to improve in 2025, with G20 economies averaging growth rates of 3.35%. India and Indonesia are stand out markets and will benefit Australia as they are both major export markets.
Dr Stone says inflation is also expected to further recede, with central banks having reached their monetary policy targets in nearly half of the world’s advanced economies (US, UK, Canada, Japan etc) and close to 60% for emerging market economies (India, Brazil, South Africa etc).
“Inflation is coming down in Australia and rate cuts are expected in the first half of the year, with many economists predicting one at the February meeting. However, there are still lingering concerns about Commonwealth payments affecting the CPI (consumer price index) numbers, with rents still growing strongly, services inflation running over 4%, a continued tight housing market and low unemployment,” she says,
“All of this implies that spare capacity is limited in the economy and that any increase in demand accompanied by lowering interest rates could rekindle inflation.”
Dr Stone, a former OECD and United Nations economist, says the labour market picture is more nuanced, with growth in full-time employment post-COVID-19 slightly ahead of part-time work, but this varies significantly by sector. The strongest employment increases have been in electricity, gas and water (EGW) and construction nationally.
“EGW has more than doubled its employment growth since COVID (compared to the 10-year average) but it has come mainly through part-time work – 11% growth versus 3% growth in full-time jobs,” Dr Stone says. “The construction and health sectors were the next highest at 1.6% and 1.5% growth respectively. Both experienced stronger growth in full time workers than part-time.
“Professional, scientific and technical services employment has actually grown at a slower rate in Australia since COVID with the average annual rate of 0.8% versus the average rate of 0.9% since 2014. However, manufacturing, while small, shows much stronger employment gains since COVID then in the 10-year period overall. In this sector, part-time employment has actually fallen while full-time has increased.
“We see the construction sector really bouncing back from pre-COVID averages, with full-time job growth (at 1.7%) more than twice the rate as prior to COVID (0.7%) while part-time job growth remained the same (1%). Thus, tight conditions in the construction industry job market are likely to continue into 2025.”
As inflation comes down and real wages rise, some recovery in household finances can be expected which should increase household spending. A key to growth in Australia’s economy for 2025 and beyond is business investment, Dr Stone says.
“We saw volume measures of retail spending finish the year up, especially for household goods, which means people aren’t just spending more because of price increases. As the price index (CPI) continues to fall faster than the wage index (WPI), along with the expected cut in interest rates, household budgets should recover in 2025,” she says.
Following Donald Trump’s official inauguration as the United States’ 47th president, like many countries, Australia is adapting to his return and promise of new tariffs on Canada, Mexico and China.
Dr Stone says Australians may be affected by the additional trade barriers as even though the US accounts for only 5% of Australian exports, it still ranks as Australia’s fifth-largest export market.
“We export a relatively small number of commodities to the US but it’s still an important customer for our advanced manufacturing sector. The US imports many of our high technology products such as hi-tech engines, aircraft and space parts and machine tools,” she says.
“The US is also our second largest services export market, making up more than 10% of our total services trade. Service inputs are things like software, engineering or transport services that help produce international goods such as toys, laptops and refrigerators.”
Dr Stone says overall, 2025 should be a year of recovery with Australian households and business benefitting from lower interest rates and improved market conditions.
“Overseas markets are likely to remain rocky, but a weak dollar will help exports. Structural challenges in the housing market, innovation and business investment will need to be addressed to ensure sustained growth,” she adds.
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Contact for interview: Dr Susan Stone, University of South Australia Credit Union SA Chair of Economics E: Susan.Stone@unisa.edu.au
Media contact: Melissa Keogh, Communications Officer, UniSA M: +61 403 659 154 E: Melissa.Keogh@unisa.edu.au
