Australia

The 2025 Article IV Consultation discusses 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. Near-term macro policies should aim to contain price pressures and rebuild buffers, while structural reforms should target closing the productivity gap. Monetary policy has been on hold since October, amid renewed price pressures. The current stance is appropriate, but policy should remain ready to adopt a more restrictive or accommodative setting if warranted by incoming economic data. The report recommends that the fiscal policy should adopt a growth friendly fiscal consolidation beginning in FY2026/27 to help cement fiscal buffers and strengthen the external position, while safeguarding the recovery. The structured policy measures anchored on the authorities’ productivity and growth mission are well aligned with staff advice. They include corporate tax reform, advancing digitalization and AI adoption, boosting competition and business dynamism and labor market reforms. Disciplined and narrow use of green industrial policy should be maintained to address market failures and generate positive externalities.