2024: A year in review

Goodbye 2024 – it’s been a difficult year for the Australian economy, which was met with persistent and complex challenges.  

With interest rates firmly in restrictive territory, the RBA Board’s extended waiting game with inflation has dragged on longer than expected. High housing, energy, and broader services costs have kept underlying inflation above the RBA’s target range, delaying the prospect of rate cuts.

However, inflation is no longer the primary issue. The Australian economy is now growing at its slowest annual rate—excluding the pandemic—since the early 1990s recession. Australia’s private sector has effectively ground to a halt, with only government spending keeping economic growth in positive territory. Growth in consumer spending is well below pre-pandemic averages, while disposable incomes (adjusted for inflation and population growth) have fallen back to 2017 levels. That broader weakness has placed significant stress on the business sector, with business insolvencies recently hitting record highs.

Chart 1: Number of monthly business insolvencies, 3-month rolling average

Source: Australian Securities and Investments Commission

In contrast, the labour market remained a rare bright spot throughout 2024, proving more resilient than expected. The unemployment rate has stayed impressively low, never exceeding 4.2%, and dropping back to 3.9% in November. According to the November labour force survey, more than 390,000 Australians have found work since the end of last year, mostly in full-time positions.

The bulk of 2024’s employment growth has been in the non-market sector (health and social assistance, education, and the public service). An ageing population has driven increased demand for aged care and health care services, while the rapid expansion of the $49 billion National Disability Insurance Scheme has also boosted jobs in social assistance. 

With strong employment growth in the non-market sector, these labour-intensive industries have struggled to improve productivity. That puts a stronger focus on driving efficiency improvements elsewhere. The key to revitalising productivity lies in business investment, which unfortunately has remained stagnant in 2024. 

Chart 2: GDP per hour worked, seasonally adjusted, (index 2010 = 100)                                                            

Source: ABS National Accounts, ABS Labour Force

Hello 2025. The good news is that economic conditions are unlikely to weaken further from here. The pace of growth in the economy is expected to lift through 2025 as higher household incomes support higher spending. Housing investment may also start to turn up, but it will take a little longer for this sector to meaningfully recover.

Households have borne the brunt of the slowdown in the economy. These under-pressure households are seeing some relief from modest real wage gains, tax cuts, other government spending and rebates, as well as a lift in asset prices. Lower interest rates in 2025 will also support the one-third of Australian households that have a mortgage. 

However, a household spending recovery may only be gradual because of the lingering load of the current cost-of living crisis. Indeed, such has been the destruction of real wages in Australia over recent years that it may be 2031 before pre-pandemic purchasing power is restored.

Ultimately, as the Australian economy continues to lean heavily on temporary public sector spending and population growth, achieving more robust and sustainable economic progress will be difficult. For now, Australia faces the dual challenge of navigating a slow economic recovery and addressing the structural issues that have long constrained its productive potential.

This newsletter was distributed on 18th December 2024. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Naasha Kermani, Senior Economist at Deloitte Access Economics

Click on the links below to read our previous Weekly Economic Briefings:

• CFO Sentiment: Balancing confidence and caution (12 Dec)
• National Accounts: Government spending continues to prop up Australia’s economy (05 Dec)
• Deloitte Access Economics’ Budget Monitor – Soft landing, hard truths (26 Nov)
• 2023-24 State Accounts: performance, challenges, and what’s ahead (20 Nov)