• • According to NAB economists, the economy continues to track broadly as expected and though downside risks have emerged, they still see the economy on track for a soft landing.
  • Expectations for GDP growth this year have been lowered to 1.8% yoy, but inflation and labour market tracks unchanged.
  • The RBA will need to continue to lower rates in the near term to ensure that the labour market remains healthy.

The May 2025 edition of NAB Economics’ Forward View Australia brings together the latest insights into the fundamentals of the Australian economy, including inflation, interest rates and employment, and explores the impact of ongoing uncertainty driven by global trade tensions.

In the report, NAB economists said that while confidence in Australia has managed to generally hold up despite the trade tensions, uncertainty remains.

“While global trade tensions have eased to a degree over recent weeks the risk of a re-escalation remains and high levels of global uncertainty will likely persist for some time. For now, confidence measures have not deteriorated significantly, while financial markets and commodity prices have rebounded, we see these “amplifications” as the biggest risk to our forecasts for this year,” the report says.

The report notes recent data indicates that inflation is gradually moderating and that the labour market remained resilient, but growth may have stalled.

“Activity indicators point to the risk that growth may not be rebounding as quickly as expected. Consumption partials for Q1 suggest that the consumer lost momentum after a pickup in growth in Q4. The read across our business surveys also suggests that the outlook for investment growth remains soft, and while the labour market components have been relatively better, there is a risk that softer profitability and trading conditions flows through to the labour market.

“We continue to expect below trend growth this year (but ongoing recovery next year); the unemployment rate to drift higher, peaking at around 4.4% in late 2025; and underlying inflation to settle around the middle of the target band from mid-2025.”

On interest rates, NAB Economics now expect a 25bp rate cut in July, August and November for a terminal rate of 3.1%.

“The RBA lowered the cash rate by 25bp at it’s May meeting and published revised forecasts. Both the statement and the press conference have developed in a more dovish direction and acknowledged that the balance of risks have shifted to the downside. Their forecasts for the economy continue to converge towards our own, and we continue to see the need for the RBA to return the cash rate to a neutral stance over coming months but have lifted our terminal rate expectation to 3.1% (from 2.6%) in recognition of a more modest offshore headwind.”

Read the full Forward View Australia May 2025 here.