While there remains considerable uncertainty around the outlook, the Australian economy is well placed to navigate the economic challenges ahead. Domestically, inflation has moderated substantially from its peak in 2022, the unemployment rate remains near historical lows, annual real wages are growing and business investment, though moderating recently, has been strong. However, the combination of elevated inflation and high interest rates has resulted in lower growth over the past year and flatter household consumption. Although the labour market has proven highly resilient, there are signs that labour market conditions are softening and will continue to ease over 2024–25.

Looking forward, the government’s cost-of-living relief measures announced in the 2024–25 Budget are expected to support real household disposable incomes and a recovery in household consumption. The improvement in household consumption is expected to be complemented by an elevated level of business investment and a gradual pick-up in dwelling investment as cost pressures ease and asset returns improve.

Key risks include weak household consumption, particularly if households, facing budget constraints, instead seek to replenish savings or if employment growth is slower than forecast. Inflation could also be more persistent than expected.

There are also global factors that pose downside risks to the outlook, including global growth which is expected to remain subdued over the next few years as the effects of high inflation, restrictive macroeconomic policies, geopolitical tensions, and challenges in the Chinese economy weigh on the outlook. While developments such as the global transformation to net zero and rapid shifts in the geostrategic landscape are creating challenges, they also present opportunities for Australia’s economic prosperity and security.

The department supports the government to deal with these economic challenges and position the Australian economy to capitalise on the opportunities. PM&C will continue to support the development of policies to provide cost-of-living relief to all Australians and facilitate the transition to a net zero economy.

The department also continues to support the government’s objective of responsible fiscal management. The government’s economic and fiscal strategy aims to make the economy more resilient and put the budget on a more sustainable footing. In the short term, efforts are underway to keep pressure off inflation while continuing to provide targeted cost-of-living relief to those most in need. Over the medium to longer term, the strategy will be supported by reducing gross debt as a share of the economy, returning tax upgrades to the Budget, and supporting sustainable economic growth and responsible use of public finances.

In addition, the Australian economy continues to witness a range of broader structural shifts, with significant forces expected to reshape Australia’s economy in coming decades. These forces include an aging population, rising demand for care and support services, climate change and the net zero transformation, technological and digital transformation, and continued geopolitical risk and fragmentation. PM&C will continue to work to support the government in navigating the complex policy challenges ahead.