OECD forecasts 1.8 per cent Australian GDP growth in 2025

The OECD says the world economy is “turning a corner” on inflation and offers a bullish read on Australia’s outlook for 2025.

There are clear green shoots ahead for the Australian economy in 2025, a leading global forecaster says, with inflation set to keep falling and economic growth to pick up.

The OECD’s September Economic Outlook, which predicts trends and growth rates across the world’s leading economies, expects Australian GDP growth to hit 1.8 per cent in 2025, ahead of most European economies and the United States.

The US is forecast to grow by 1.6 per cent while Germany, the largest economy in Europe, is predicted to expand by just 1 per cent.

In 2024, the OECD expects Australia’s growth rate to come in at 1.1 per cent, a 0.4 per cent retreat from the 1.5 per cent growth rate it projected in May.

In 2023, GDP grew by 2 per cent.

Headline inflation in Australia is also projected to fall to 2.4 per cent in 2025, which would place it firmly within the RBA’s 2-3 per cent target band.

On Wednesday, the ABS reported annual headline inflation had dropped from 3.5 per cent to 2.7 per cent and underlying inflation had fallen from 3.8 per cent to 3.4 per cent.

The OECD expects the Australian economy to expand by 1.8 per cent in 2025. Picture: NewsWire / Nikki Short

Some analysts interpreted the reading to crack open the door for a December RBA rate cut.

“If annual trimmed mean inflation does not once again lurch higher but continues its recent trajectory lower, there is a growing chance it could reach the midpoint of the RBA’s 2-3 per cent target band by year-end, which would be significantly better than current RBA forecasts,” Betashares chief economist David Bassanese said.

“If so, there would be a good chance the RBA could cut interest rates before Christmas.”

The OECD’s September forecasts, released on Wednesday, also suggest the world economy is “turning a corner” on inflation and growth.

“Recent activity indicators suggest ongoing momentum, especially in services sectors,” the report states.

“Real wage growth is now supporting household incomes and spending, though purchasing power has yet to fully return to pre-pandemic levels in many countries.

“Global trade is recovering faster than expected, but shipping costs remain elevated and export orders have recently moderated.”

The forecaster expects global GDP growth to “stabilise” at 3.2 per cent in 2024 and 2025 with further disinflation, improving real incomes and less restrictive monetary policy in many economies “helping to underpin demand”.

China, Australia’s largest trading partner, is forecast to grow at 4.5 per cent in 2025.

The research body also warns “significant risks remain” to growth.

“Persisting geopolitical and trade tensions could increasingly damage investment and raise import prices,” the report states.

“Growth could slow more sharply than expected as labour markets cool and deviations from the expected smooth disinflation path could trigger disruptions in financial markets.”

The OECD also calls for “decisive fiscal actions” to ensure “debt sustainability” in advanced economies.

“Stronger efforts to contain spending and enhance revenues, set within credible medium-term adjustment

paths, are key to ensuring that debt burdens stabilise,” the forecaster said.

“Reinvigorating product market reforms that promote open markets with healthy competitive dynamics is an essential step to foster stronger sustained economic growth and help alleviate longer-term fiscal pressures.”

Originally published as OECD forecasts 1.8 per cent Australian GDP growth in 2025