2024 finished with mixed news for the Australian economy and markets. There were some excellent trends, some concerning events and a range of issues somewhere in the middle. Here’s what happened and what to look out for in 2025.

Economic growth was weak in 2024, held back by weak consumer spending and aided, thankfully, by a lift in government spending. That said, bottom line GDP growth was hovering around 1 per cent, its weakest point since the early 1990s recession (outside the Covid pandemic episode).

Inflation fell sharply, ending the year within the RBA's 2 to 3 per cent target zone which helped to see a lift in real wages growth. The good news is that the inflation problem has been beaten.

Against all expectations, unemployment remained close to a 50 year low, a few ticks above or below 4 per cent. A wonderful achievement!

Australian share prices hit a record high and even though there was a bit of a pull back in the final weeks of the year, the ASX200 ended the year up 7 per cent which builds to a return around 11 per cent when dividends are included.

Growth in house prices eased with prices flat or down in Sydney, Melbourne, Canberra, Hobart and Darwin while price growth in what were the ‘boom’ cities slowing.

Against expectations, the RBA left interest rates unchanged at a 13 year high of 4.35 per cent. This was despite the fall in inflation, weak economy and a deluge of interest rate cuts around the world.

Where to in 2025?

The economy is set to register a moderate pick-up in economic growth in 2025. Further growth in public spending will assist the expansion, while a recovery in household spending depends on the RBA delivering a series of interest rate cuts. Business investment is expected to recover as firms ramp up capital expenditure on AI, technology and other machinery and buildings. There is also likely to be a lift in dwelling investment as the housing construction cycle turns solidly positive.

The good news is set to continue for inflation which should remain around 2.5 per cent. Lower inflation around the world will be ‘imported’ into Australia and from the inflation outlook, lower growth and moderate wages growth will help keep inflation on target.

The good news on unemployment is likely to be tarnished with a weaker jobs market in store for the year ahead. That said, the lift in the unemployment rate will likely be capped around 4.75 per cent.

Australian share prices are set to have a down year, driven mainly by what is looking to be a pull-back in the US stock market. After several very strong years, US stocks are set for a pull back as the Trump administration embarks of a series of policy upheavals, including higher tariffs, savage cuts to government spending, tax changes and widespread deregulation. Fewer interest rate cuts from the US Federal Reserve and the risk of a late 2025 interest rate hike will dampen the stock market including in Australia.