Real GDP growth

IBISWorld forecasts real GDP to increase by 2.2% in 2025-26, to $2.78 trillion. This follows tempered growth of 1.4% in 2023-24 and 1.3% in 2024-25, bringing GDP growth back broadly in line with the Reserve Bank of Australia's (RBA) estimated potential growth rate of around 2%. The increase in GDP has been across the board, with growth recorded in 17 of the 19 industries measured by the ABS in the December quarter. Household consumption expenditure, the largest component of GDP, is expected to rise thanks to rising real disposable incomes and Stage 3 tax cuts, which will support real GDP growth. Private demand was especially strong in the second half of 2025, underpinned by strong household consumption and private investment. Corporate profits rose strongly in December 2025, driven by surging mining profits. Government expenditure has further contributed to GDP growth. According to the Reserve Bank of Australia's (RBA) Statement on Monetary Policy, inflation has increased above the 2-3% target band, constraining growth in real wages for households. The RBA's February 2026 rate hike, is expected to limit household consumption and GDP growth towards the end of 2025-26 and into 2026-27. The expiry of household energy rebates has bolstered electricity prices, contributing to headline inflation climbing to 3.7% in the 12 months to February 2026. This situation highlights the persistence of inflation and its potential to exert downward pressure on real GDP.

Real GDP growth rebounded strongly from the pandemic-related declines, buoyed by pent-up demand, high levels of government stimulus and the gradual easing of pandemic-related restrictions on movement. Fiscal assistance schemes, such as the JobKeeper and JobSeeker stimulus packages, led to a rebound in economic activity and growth. In 2021-22, pent-up demand and the lifting of border closures and state-wide lockdowns drove sharp growth in real GDP as household spending and merchandise trade soared. Federal and state governments also announced infrastructure investments, including renewable energy projects that supported real GDP growth over the past five years. Surging immigration during 2021-22 and 2022-23 contributed to labour supply and consumer demand, and ultimately to GDP growth, while elevated commodity prices boosted business profits during this period. However, a steep rise in inflation during the 2022 calendar year and a corresponding increase in interest rates have weighed on real GDP growth since 2022-23, especially as cost-of-living pressures led to consumer sentiment plummeting and to a slowdown in discretionary spending. Capital expenditure on private dwellings fell over the period, thanks to declines in residential construction activity and dwelling commencements stemming from supply chain issues and a subsequent rise in interest rates.

Despite troubles in the domestic economy, especially in the construction sector, other segments of the economy boomed amid a global rise in prices for particular commodities. Export opportunities for agriculture and mining firms surged as a combination of rising demand and surging prices boosted the value of merchandise trade exports. Strong commodity export volumes in agricultural exports were supported by high levels of rainfall, resulting in multiple bumper crops in the two years through 2022-23. High commodity prices, such as wheat, coal and gas, driven primarily by the Russia-Ukraine conflict, also supported the value of exports over the two years through 2022-23. More recently, prices have eased, leading to successive declines in the value of merchandise exports over the three years through 2025-26. Moderating commodity prices and persistent inflationary pressures have also curbed real economic growth in the two years through 2024-25. More recently, the Federal Government's Stage 3 tax cut, which came into effect in July 2024, has supported real GDP expansion. Overall, IBISWorld forecasts real GDP to grow at a compound annual rate of 2.5% over the five years through 2025-26.