The International Monetary Fund (IMF) has stated in a latest update that the Australian economy is managing a soft landing. Growth picked up to 2.1 percent year on year in 2025Q3 after a weak 2024, as private demand gradually recovered. With the output gap narrowing, inflation declined steadily through 2025Q2, allowing monetary policy to be eased over the course of the year. However, inflationary pressures have re-emerged in recent months, bringing underlying inflation above 3 percent in 2025Q3. Labor market conditions are easing gradually after a period of tightness, although the unemployment rate, at 4.3 percent, remains low by historical standards. House prices have rebounded as financial conditions eased, and new dwelling investment has begun to pick up.

The economic recovery is expected to continue in the near-term. Real GDP is forecast to have expanded by 1.9 percent in 2025 and to grow by 2.1 percent in 2026 as the lagged impact of monetary easing and improving consumer sentiment support private demand and investment. Elevated global uncertainty will continue to weigh on external demand and the current account is expected to remain in deficit into the medium term. Inflation is projected to converge to the midpoint of the RBA’s 2 to 3 percent target range by the latter half of 2027, as pressures on service prices ease and import costs remain stable.

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