The Forward View Australia, September 2025 – resilience persists

01 October 2025
Economy and Markets

• Q2 consumption boosts 2025 growth outlook. 

• Trend growth expected in 18 months; low unemployment, 2.5% inflation. 

• Rate cuts in Nov & Feb; terminal rate 3.1% by early 2026. 

• Global risks persist; domestic strength could shift outlook up. 

NAB’s forecasts remain largely unchanged in the September The Forward View Australia, reflecting ongoing resilience in the economy and improving growth in the private sector.

Overview

The domestic data flow over the past month continues to provide greater confidence in our forecast of a gentle acceleration in GDP growth in coming quarters. July activity data showed a pickup in household spending, a solid rise in jobs growth and a decent lift in credit growth. Growth in house prices has continued in 3Q, and the composite PMI for Australia has lifted over 5 points so far this year. The NAB business survey has improved in recent months, with the August survey showing better outcomes in previously weak sectors and regions (retail, manufacturing and Victoria). GDP rose 0.6% in the June quarter, boosted by strength in household spending. In summary, we are encouraged by the breadth of improvement in the domestic activity data in the past month or so.

The labour market remains resilient, with the unemployment rate at 4.2% and growth in employment running at 2.0% over the past year. Forward indicators of labour demand are largely tracking sideways. Core inflation has continued to sustain a gradual descent, with the June quarter measure rising 0.6% q/q. The most recent monthly inflation data for July confirm our expectation that the shelter components of the inflation basket have likely troughed. While a faster pickup in this component is a risk, broader conditions are consistent with overall inflation sustaining near target. 

On net, this leaves our outlook for the economy broadly unchanged. We expect another year of below trend growth in 2025 and forecast GDP growth to accelerate to around trend over 2026. We expect the unemployment rate to drift up modestly, peaking at 4.4% in late 2025 before falling back to ~4.25% in 2026. We still expect underlying inflation to settle around 2.5% from H2 2025. 

Risks to our forecasts for the Australian economy remain balanced, although if the tone to recent domestic data sustains in coming months, risks will shift to the upside. We expect the RBA to deliver quarterly easings in November and February, taking the cash rate to 3.1% by early 2026.

Read more in The Forward View Australia, September 2025 (PDF, 1MB).