Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

The Australian economy experienced 26 years of uninterrupted economic growth. it was the only OECD country that did not enter into recession during the financial crisis of 2007-2008, holding one of the highest growth rates of the developed world. In 2022, Australia was the world’s 13th largest economy. Under the global effect of the COVID pandemic, it’s GDP growth amounted to -2.4% in 2020, down from 1.9% a year earlier but bounced back in 2021 at 4.9% and then 3.9% in 2022. The economy continues to be driven by business and government spending, while households and the consumer sector struggle amid low wages growth (generally, consumer spending represents almost 60% of the economy). The country also benefits from large-scale exports of agricultural products and a vigorous financial sector. According to the IMF's October 2021 forecast, GDP growth is expected to reach 1.9% in 2023 and then 1.8% in 2024 (IMF Economic and Political Outlook, October 2022). A risk is that the recovery in business and consumer sentiment is hampered by a rise in business insolvencies and renewed labour market weakness as policy support was scaled back in 2021. The economic recovery has been uneven due to differences in the impact of voluntary and imposed confinement across regions, industries and firms. The end of border restrictions is slowly fuelling the recovery in education and tourism exports.

In 2022, the inflation rate in Australia was 6.5%, a rate that is expected to come back to 4.8% in 2023 and 2.9% in 2024 according to the latest World Economic Outlook from the IMF (October 2022). Due to the COVID-19 crisis, the government budget balance showed a large deficit in 2021 (-6.2 % of GDP) which came back in 2022 to -3.5%. It is forecasted to stabilise at -3.1% in 2023 and -2.6% in 2024. IMF evaluated the 2022 government debt at 56.7% of GDP, expecting it to reach 58.6% and 60.5% in 2023 and 2024 respectively. Private consumption should continue to decrease as households become more cautious. Some support is coming from fiscal policy in the form of infrastructure spending, tax breaks and social transfers, and from a still accommodating monetary policy. Investment is also set to get some traction, benefiting from still ample corporate profits, favourable taxation and higher demand for infrastructure and services. A risk is that the recovery in business and consumer sentiment is hampered by a rise in business insolvencies and renewed labour market weakness as policy support was scaled back in 2021.  Services exports in particular (tourism and education) are expected to regain momentum in a post-COVID world, helped by a renewed demand from Asia-Pacific neighbours. The Government is seeking to increase national appeal relative to its Asian competition in international trade. At the same time, to boost the economy, Australia is increasing its economic integration with the Asia-Pacific region and Europe, with which it has signed trade agreements while maintaining preferential relations with the United States. 2022 was a year of a renewed dialogue with China, in a context of tense relationship with this country, Australia's biggest trading partner.

The unemployment rate was quite low until the pandemic (5.2%) but picked at 6.5% in 2020 before coming back to 5.2% in 2021 an 3.6% in 2022. The IMF expects the unemployment rate to reach 3.7% in 2023 and 4.2% in 2024. Moreover, Australia must face an ageing population and climate change impacts, such as the loss of 20% of the Great Coral Reef's coral due to a catastrophic bleaching situation, catastrophic bushfire - during the 2019-2020 fire season over 17 million hectares had been burned across the country - and the increasing frequency and duration of extreme weather events like floods and droughts putting an unprecedented stress on the Australian agriculture. The country is also one of the largest Co2 polluters per capita in the world.

In 2023, the country’s most immediate challenge will be to navigate the volatile international context, facing steep challenges against a backdrop of the persistent health and economic overhang of a global pandemic and a war in Europe, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

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