RBA says Australian economy is at risk despite its strength

The future of Australia’s economy “continues to be clouded by uncertainty” despite its strong recovery from high inflation.

Speaking in Canberra on Monday, Reserve Bank of Australia (RBA) governor Michele Bullock suggested the outlook for the domestic economy was weakening.

“This is especially so the further into the future we look,” she said.

Despite solid progress on reining in Australia’s post-Covid inflation crisis, increased geopolitical tensions this year have taken a toll on the RBA’s confidence.  

With one week to go until the next decision on the cash rate, Ms Bullock was in the nation’s capital to face the Standing Committee on Economics.

“We need to be alert to the risk that circumstances may change and be prepared to respond if necessary,” she warned. “The global environment is particularly uncertain and unpredictable.”

The introduction of tariffs by the United States and subsequent concerns around a US-China trade war have rattled Australia this year, while supply chain issues and political uncertainty linked to international conflicts in both Europe and the Middle East have affected markets, energy prices and trade flows.

Ms Bullock explained the bank also has particular concerns around economic growth failing to sustain, as well as growth not being aligned to expectations.

“There may also be more excess demand in the economy and labour market outcomes may be stronger than expected,” she added. “We are mindful that productivity growth has not picked up and growth in unit labour costs remains high.

“The board will remain attentive to the data and the evolving assessment of risks to guide its decisions.”

While these concerns are painting a less than rosy picture for Australia’s longer-term outlook, Ms Bullock said she remained confident.

“Monetary policy is well placed to respond if it seems international developments could have a material impact on Australia’s economy,” she said.

With another RBA board meeting approaching, borrowers and homeowners are still expected be on the lookout for further easing.

Expectations of a rate cut next week are now at the lowest level this month, the Australian Stock Exchange shows. The rate indication calculator estimates just a 10% chance of a cut.

While inflation has dropped significantly in the last year and resulted in three rate cuts, 2024-25 was the weakest financial year for growth in Australia since the early 1990s, excluding 2019-20.

Ms Bullock acknowledged the high inflation years had a material impact on Australia’s economy.

“The higher price level has affected everyone—whether you’re paying a mortgage, renting, running a business, or just trying to make ends meet,” she said.

“It’s been especially tough on people with lower incomes and those in more vulnerable situations.

“This is why so important that inflation remains low and stable.”

This article first appeared on Mortgage Choice and has been republished with permission.

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