Australia’s economy grew by 0.6% in the second quarter of 2025, showing slight growth that is still better than anticipated. Year-over-year the economy grew by 1.8% in the second quarter, according to the Wall Street Journal, beating out the forecasted 1.6%.  

The slightly positive outlook suggests that interest-rate cuts starting in February have started to lift private demand as the growth was largely driven by increased domestic spending, including household and government consumption. The Westpac-Melbourne Institute survey found that consumer sentiment jumped 5.7% in August, reaching its highest level in more than three years, according to CNBC. 

Economists are hopeful that increased domestic spending is a good sign. “Domestically, private demand appears to have been recovering gradually, real household incomes have picked up and some measures of financial conditions have eased,” the Reserve Bank of Australia (RBA) said, per CNBC. 

Despite this positive growth, net trade, led by exports of mining commodities, did not contribute significantly to this positive growth, according to CNBC. Economists warn that while heightened global uncertainty did not have large impact on economic growth, it could impact the economy in the second half of the year.  

The positive reading comes at the heels of the decision to cut rates by 25 basis points to 3.6% in August, according to CNBC. The rate cut coincides with lackluster economic forecasts from the RBA, including a downgraded outlook for productivity. In August the bank reduced its economic growth forecast for the year from 2.1% to 1.7%.  

Despite this news, the RBA still predicts a slowdown in core inflation and a steady unemployment rate. Inflation came in at 2.1% in the second quarter, the lowest level since March 2021 and on the lower end of the yearly predicted range.  

Interest rate cuts are expected to continue over the next year, but if consumer spending continues to grow, they may not seem necessary. Some economist fear that increased consumer spending could curb necessary rate cuts. “The pickup in domestic demand raises the risks that the RBA won’t loosen policy as aggressively as we’re predicting,” said Abhijit Surya, economist at Capital Economics, per the Wall Street Journal.  

Australia’s role in global trade could shift as the country considers establishing a price floor for their critical minerals, which are vital to the manufacturing of defense and strategic technologies. The United States recently established a price floor for their rare-earth minerals, which is suspected to lead to more governments following suit as the U.S. seeks to undercut China’s dominance in the mineral market, per the Wall Street Journal.  

Sales to customers in Australia are primarily with existing customers, according to FCIB’s Credit and Collections Survey, with 63% of credit managers offering 1-30 day terms. Customers are seven days beyond terms on average, with delays attributed to billing disputes (50%), customer payment policy (50%), cash flow issues (30%) and inability to pay (20%).  

“Government regulations have been slowing down the payment process,” one respondent wrote. “Know your customer, legal entity, credit capacity, operational metrics and financial health (5 Cs of Credit) especially in these turbulent economic times,” another respondent advised.