After the release of the national accounts and GDP data this week, NAB Chief Economist Dr Sally Auld joined the Fear and Greed podcast to discuss Australia’s economic outlook, including growth, investment, productivity and interest rates.
Australia’s economy starts 2025 on a softer footing
Despite an anticipated improvement on last year, Dr Auld said the Australian economy is likely to experience another year of below-trend growth.
“We are going to have to lower our sights on the potential trajectory for the Australian economy through 2025,” Dr Auld said.
“We started to sense that this was a likely outcome maybe a month ago when we got the read on where first quarter consumption partial data was headed, and it felt to us like it was tracking weaker than we and the Reserve Bank had expected.”
The latest GDP figures, Dr Auld noted, confirmed a weaker-than-expected start to the year.
“Today’s [GDP] number, which is disappointing, does suggest the economy is struggling to get up some genuine momentum as we start 2025.”
She also noted that there were factors contributing to the numbers.
“There were some unusual things going on in the quarter. A lot of that was weather-related, but also some funny things in the way that the statistician compiles the national accounts in terms of how we account for electricity subsidies, so a lot of one-offs going on.
Dr Auld said the broader picture remains one of modest growth.
“We are in for another year of sub-trend growth here in Australia, albeit growth that’s a bit stronger than it was last year.”
Private sector investment shows early signs of improvement
Dr Auld said business investment remains subdued, but there were some encouraging developments earlier in 2025.
“It is a bit sluggish, and that has been one of the missing links in terms of the overall growth trajectory in Australia.”
“Government spending was a bit softer in the quarter, and private spending, including consumption and also investment, was a little stronger.”
However, she cautioned that this may not yet represent a lasting trend.
“While we are all sort of desperate to have a little bit of reorientation in the economy away from public sector-driven growth toward private sector-driven growth, I’m not sure, even though that’s what we saw in the first three months of 2025, that we’re yet on a sustainable trajectory for that story.”
Productivity remains flat
Dr Auld noted that productivity has been lacklustre, with no improvement in the first quarter of 2025.
“Productivity was flat in the quarter. When you look at a chart of productivity growth it’s basically been flat for the last couple of quarters.”
She said this is a key reason for weak per capita growth.
“We’re not really generating any growth from using the inputs into production, whether that’s capital or labour, more efficiently, so hopefully that might change in the coming years.
Interest rates expected to fall
Dr Auld said the Reserve Bank is likely to continue cutting interest rates in the second half of 2025.
“They [RBA] don’t want interest rates at a level where they’re exerting a headwind on the overall economy.”
NAB expects three further rate cuts this year, starting in July.
“We forecast a cut at the next meeting in July, followed by another in August, and a final cut in November. That will give another 75 basis points of rate cuts, and i think should see monetary policy far more appropriate given underlying fundamentals.”
Listen to the full conversation here.
