Article by Matthew Cranston, courtesy of The Australian
03.06.2025
Economic growth has been downgraded this year by the Organisation for Economic Co-operation and Development, which urged a major overhaul of Australia’s complex regulations in order to boost investment and productivity.
Economists from the “big four” banks and a handful of other banks cut their expectations for economic growth in the first quarter of this year, with Westpac expecting a mere 0.1 per cent growth and a risk of the first quarter being negative when official figures are released on Wednesday.
The Paris-based organisation said the Australian economy would grow 1.8 per cent this year, down from its previous forecast of 1.9 per cent and 2.2 per cent in 2026, up from its earlier 1.8 per cent estimate, but still down from its 2.5 per cent forecast in December 2024.
“Both business and consumer sentiment have worsened recently, however, likely reflecting the elevated uncertainty arising from global trade tensions,” it said. “Activity indicators for early 2025, including household spending, suggest that the improved but still moderate private consumption growth seen in late 2024 has continued.”
The OECD had a word of warning that government had to accelerate reform on cutting regulations.
“Reducing complexity and introducing greater flexibility in zoning systems, including by being less prescriptive about the specific activities that can be undertaken on a parcel of land, can enable firm entry and growth, as well as the ability of the economy to adapt to ongoing structural change,” it said. “Such recommendations appear to be particularly relevant in Australia. Further efforts to harmonise regulations … between subnational jurisdictions, such as in Canada or Australia, could support stronger trade and productivity growth.”
The global economic growth is projected to slow from 3.3 per cent in 2024, to 2.9 per cent in 2025 and 2026 due to trade wars and “elevated policy uncertainty” weighing on growth in business investment.
“At the same time, consumer spending is also projected to soften in most economies as fragile sentiment and lingering cost-of-living pressures are compounded by the impact of higher trade costs on final goods prices and, in some countries, weaker labour market developments.”
Locally, ANZ chopped its forecast for the first quarter to 0.2 per cent, down from the bank’s previous estimate of 0.6 per cent. CBA economists trimmed their GDP estimate for the first quarter to 0.3 per cent from an earlier revised forecast of 0.4 per cent. NAB revised its first-quarter GDP pick to 0.2 per cent, down from 0.5 per cent.
ANZ chief economist Adam Boynton said a range of factors was driving the downgrades from banks. “Over the past month or so a range of input into the Q1 estimate came in weaker than expected,” he said. “These include a slightly softer pace of household consumption, a fall in public demand in – although this should be temporary – net exports making a small subtraction from growth and soft private capital expenditure data.”
Westpac economists said there was a small risk that GDP growth could be “a small negative”.
Jim Chalmers said volatile international conditions were chiefly to blame for a slip in GDP forecasts. “The international economy is full of uncertainty, unpredictability and volatility and that’s why the OECD has downgraded its forecasts for global growth,” the Treasurer said. “We will see this play out in our own National Accounts as Australia deals with the impacts of repeated natural disasters at home, and the global economic headwinds facing countries around the world. We aren’t immune from all of this global uncertainty but we are well placed and well prepared because of the progress Australians have made together in our economy.”
Opposition Treasury spokesman Ted O’Brien said the OECD warning was a wake-up call for the government. “You can’t deliver productivity by layering on more red tape,” he said. “Labor needs to stop blaming the world and start fixing what’s within its control.”
