Better times ahead for economy, despite global woes
Australia's economy is tipped to strengthen over the next few years despite the uncertain global backdrop, but may stagnate without serious tax reforms.
While Australia's economic growth hit speed bumps early in of 2025 from Cyclone Alfred, other weather events and a dip in government spending, Deloitte Access Economics is optimistic the pace of economic growth will accelerate over the coming quarters.
"Conditions are improving," the economic services company said in a report released on Friday.
"Real wages are grinding higher (even if it will be around 2030 before pre-pandemic purchasing power is restored), interest rates are declining, and inflation is no longer preying on consumers' wallets or their psyche."
That suggests consumer spending will pick up, despite the jarring effects of Donald Trump's second US presidency and other global concerns weighing on confidence, the report states.
Construction activity will also be a source of economic strength, with a significant lift in dwelling activity expected across 2026 as the industry works through a backlog of projects and reforms to regulations and zoning take effect.
The quarterly report forecast Australia's gross domestic product would grow by 2.1 per cent in 2025/26 and 2.4 per cent the following year, up from the 1.4 per cent GDP growth in the year to March 2025.
The forecast is roughly in line with estimates from the Reserve Bank, which predicted in May that Australia's GDP would grow by 2.2 per cent in 2025/26 and 2.2 per cent the following year.
The Deloitte report forecasts the central bank will cut interest rates by a total of half a percentage point over the rest of 2025, and again in 2026.
It predicts 2025 will be the nadir for the Aussie dollar, buying just an average of 63.60 US cents, from 66 US cents in 2024.
But it forecasts the Aussie will buy an average of 64.70 US cents in 2026, 67.4 US cents in 2027 and 68.70 US cents in 2028.
However, Deloitte Access Economics partner and report co-author Stephen Smith warned globalisation, financialisation and technology change that had permanently boosted Australian living standards were fading.
Australia couldn't rely on the global economy to drive prosperity, he said.
Mr Smith said one of the most significant levers to drive investment, productivity and efficiency was the tax system, which hadn't been reformed in a quarter-century.
"Since then, the Australian economy has lost its dynamism and competitive edge," he said, adding it was encouraging the federal government had recently raised the topic of tax reform.
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