Australian Economy: Recovery Expected with Mortgage Rate Cuts in 2025
After experiencing its slowest growth rate in 33 years outside the COVID-19 pandemic period, the Australian economy is expected to enter a recovery phase in 2025, fueled by mortgage rate cuts. This outlook is based on positive economic forecasts released by Commonwealth Bank and KPMG. They anticipate that rate cuts could begin as early as next month, projecting low economic growth for 2024, followed by a rebound in GDP to 2.2% by the end of 2025. Gareth Aird, Head of Australian Economics at Commonwealth Bank, stated, “Restrictive monetary policies have significantly impacted the national economy,” pointing out that rising mortgage repayments have dampened economic activity.
Price Stability and Changes in the Job Market
A positive aspect of the economic outlook is the containment of inflation. Aird explained, “The economic slowdown has driven declines in both headline and core inflation indicators,” which increases the likelihood of the Reserve Bank of Australia (RBA) normalizing cash rates. However, not all the news is optimistic, as the unemployment rate is expected to rise slightly in 2025. Currently at 4%, the unemployment rate is forecasted by KPMG and Commonwealth Bank to reach 4.2% and 4.3%, respectively.
Another key point is that most of the economic growth is expected to be concentrated in the second half of 2025. This timeline will largely depend on the RBA’s monetary policy decisions.
Aird predicts that the unusually strong labor market of 2024 will weaken in 2025. “We do not expect non-market-driven employment growth seen in 2024 to continue in the coming years,” he said, adding that the unemployment rate is likely to stabilize during the latter half of 2025. However, by 2026, as delayed impacts of GDP growth translate into more active private-sector job creation, the unemployment rate is expected to decline slightly.