According to NAB economists, the Australian economy is progressing largely as anticipated, although some downside risks have emerged. Despite these challenges, the economy is still expected to achieve a soft landing. The forecast for GDP growth this year has been adjusted downward to 1.8% year-over-year, while projections for inflation and the labor market remain unchanged. To maintain a healthy labor market, it is anticipated that the Reserve Bank of Australia (RBA) will need to continue lowering interest rates in the near term.
The May 2025 edition of NAB Economics' Forward View Australia offers insights into key aspects of the Australian economy such as inflation, interest rates, and employment. It also examines how global trade tensions are contributing to ongoing uncertainty.
NAB economists note that despite trade tensions, confidence in Australia has generally held steady. However, uncertainty persists. "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," states the report.
The report highlights that recent data shows inflation is gradually moderating and that while the labor market remains resilient, economic 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."
Looking ahead, NAB expects below-trend growth this year but anticipates recovery next year. The unemployment rate is projected to rise slightly before peaking at around 4.4% by late 2025. Underlying inflation is expected to stabilize within the target range by mid-2025.
Regarding interest rates, NAB Economics forecasts a series of rate cuts: 25 basis points each in July, August, and November leading to a terminal rate of 3.1%. "The RBA lowered the cash rate by 25bp at its May meeting and published revised forecasts... Their forecasts for the economy continue to converge towards our own," explains NAB Economics.
Further details can be found in NAB's full Forward View Australia May 2025 report.