Australia’s economy is regaining momentum after a turbulent stretch, with inflation easing, the labour market holding steady and private demand rebounding – signs that the country is engineering a soft landing despite an increasingly hostile global backdrop, according to the International Monetary Fund.
Forecasts point to growth strengthening to 1.8 per cent in 2025 and 2.1 per cent in 2026, supported by recent monetary easing and a recovery in consumption.
The Reserve Bank has already unwound 75 basis points of tightening this year, though officials remain cautious after price pressures resurfaced in the September quarter, lifting underlying inflation back to 3 per cent.
“Some price pressures re-emerged in 3Q25, including in prices of new dwellings purchased by owner-occupiers and market services, which raised underlying inflation to 3 per cent (year-on-year) and may signal residual tightness in the economy,” the IMF’s 2025 Article IV said.
Treasury and the RBA are increasingly relying on scenario planning to prepare for potential shocks – from escalating global trade tensions to a sharper slowdown in household spending – arguing that monetary agility and automatic fiscal stabilisers will be essential if conditions worsen.
Despite near-term resilience, the government faces deeper structural challenges that threaten Australia’s longer-run growth prospects.
A broad reform agenda ranging from tax, productivity, competition, labour markets and the green transition, is gaining urgency as productivity growth stalls and key spending pressures intensify.
According to IMF officials, greater spending efficiency and a more coherent national fiscal framework is needed to rebuild buffers, while targeted tax reforms could lower the cost of capital and lift investment.
“The authorities are targeting reforms to boost productivity, maintain fiscal sustainability, and ensure economic resilience. Delivering on this ambitious agenda will require skillful economic management in a challenging global environment,” the IMF article stated.
Treasurer Jim Chalmers remarked that the IMF’s statement is a strong endorsement of Labor’s responsible economic and fiscal management.
“We know the job is far from over because people are still under pressure. That’s why our economic plan is all about helping with the cost of living at the same time as we modernise Australia’s economy to boost living standards,” Chalmers said.
He further stated the best way to build on Australia’s progress is to strengthen the economy’s resilience and productivity.
“The best defence against global volatility and the best way to lift wages and living standards over the long term is with a more productive and resilient economy and a stronger budget, and that’s our focus.”
The IMF noted that Australia benefits from strong institutions and macroeconomic stability, creating favourable conditions for attracting investment to drive the next wave of growth – with attention needed on easing binding constraints such as high regulatory compliance costs, skills mismatches and falling R&D spending.
“Complex and overlapping regulations across government levels weigh on investment and business operations in multiple sectors, underscoring the need for streamlining and harmonization,” the article said.
“The green transition, including the authorities recently announced 2035 commitments, offers opportunities for enhancing investment, productivity, and diversification while contributing to Australia’s climate goals.”
Chalmers added: “The IMF also concludes the net zero transformation is a golden opportunity for investment and productivity in Australia.
