Australia

Economic growth to pick up in latter half of 2025

The slowdown in economic activity in 2024 is expected to continue into the first half of 2025 before improving in the latter half of the year, supported by monetary policy easing. Cost-of-living pressure and restrictive financial conditions continue to take their toll on domestic private demand. Labour market tensions are easing, with the unemployment rate rising from a record low of 3.5% in late 2022 to above 4% in 2024. While nominal wage growth has been robust at around an annual growth rate of 4% since the middle of 2023, it has just only recently been able to keep pace with a slowing inflation to yield positive wage increases. Household consumption comprises half the nation’s GDP and, as such, has been lacklustre owing to the decline in real wages and real household disposable income per capita over the past couple of years. While households are supported by a healthy job market and nominal wage growth, consumer confidence has remained weak and is unlikely to significantly improve soon. With high levels of household debt (112% of GDP) and elevated interest rates, Australians are tending to be cautious about spending, especially given the signs of a looser job market.

Business investment growth moderated throughout first half of 2024 after strong growth in 2023. Both mining and non-mining investment slowed. While non-mining investment fell in the June 2024 quarter, the level of investment remains elevated. Non-mining construction investment was supported by projects in renewable energy infrastructure, data centres, warehouses and progress on the pipeline of uncompleted construction work. Higher costs, broader business uncertainty and a subdued outlook for demand would see this moderation in planned investment extend into 2025.

Lower energy costs and stable commodity prices should see inflation fall further in 2025. But disinflation momentum would be held back by persistently high rent and housing prices. High inflation pushed the RBA to add 425 basis points to the Official Cash Rate (OCR) between 2022 and 2023, bringing it to 4.35% in December 2023. Despite major central banks, including the Federal Reserve, embarking on monetary policy easing, the RBA remains undecided as to the future policy direction. Weak economic activity and household spending are constraints to further rate hikes, while signs of a weaker-than-expected economy, labour market deterioration and less stubborn inflation would be cause for rate cuts.

Fiscal and current account pressures return

After beginning its fiscal consolidation drive in the 2021-2022 fiscal year, Australia posted the first back-to-back fiscal surplus in nearly 20 years in 2023-2024. But this fiscal outperformance should end in 2024-2025, with the return of a budget deficit. The weakening of the budget position is related to higher costs associated with a range of policy programmes, including further cost-of-living relief (e.g., tax cuts and energy bill relief), and extending certain health funding and frontline services, as well as key energy transition-related spending outlined in the Future Made-in-Australia package and record-level defence expenditure. It also reflects far slower revenue growth (+0.9%) compared to expenditure (+6.3%). The Australian government expects fiscal pressures to continue over the next four years and projects fiscal deficits through to 2027-2028 due to substantial and fast-growing spending on government debt interest, defence and aged care. Persistent deficits, rising interest payments and insufficient growth would mean a rise in public debt to finance the budget.

Australia's current account has been positive since 2019, driven by an expanding trade surplus and fuelled by strong growth in commodity exports. However, we expect the current account balance to return to deficit in 2024 and this shortfall to widen in 2025. Lower prices for resource commodities (especially coal) and weaker external demand for these commodities mean that trade surpluses will not be as large as in the past several years (2019-2023 average 4.6% of GDP) and therefore run the risk of being unable to cover the net income deficit (3% of GDP) associated with significant overseas dividend payments to foreign investors in mining companies.

Tight election in 2025 and stronger relations with China

The centre-left Labour government led by Prime Minister Anthony Albanese holds 103 of 227 seats in the Australian parliament, with a slim majority (51.7%) in the House of Representatives (the lower house of Parliament), and 32.9% in the Senate (the upper house). This means working with the crossbenchers (elected members of minor parties or independents who do not belong to either the government or opposition) is critical to passing legislation. The crossbench in both houses of Parliament has grown in influence and size over the past two decades. The rising cost of living is a longstanding key concern among voters ahead of the next Federal election that must take place before 27 September 2025. Policy priorities for the Labour government focus on social welfare programmes, cost-of-living measures, climate change mitigation, green energy and investment in new industries (e.g., the Future Made in Australia plan).

There has been a significant shift in Australia’s foreign and defence policy in recent years, with the most prominent transformation being the signing of the AUKUS military agreement with the United States and the United Kingdom on 15 September 2021. While the security agreement seeks to counter Chinese expansionism in the Indo-Pacific region and build on the informal military and diplomatic cooperation between the US, India, Japan and Australia (under QUAD), Australian statecraft is more about developing a new identity as a strategic ally rather than obstructing China, which remains a key economic partner. After tensions escalated in early 2023, Australian and China moved towards re-normalising trade relations, with renewed economic engagements and a resumption of high-level dialogues. The two sides also agreed to improve military-to-military communications to avoid future maritime incidents.

Payment

Payment methods include:

cash: Personal cheques and bank cheques: used for domestic and international transactions;

credit cards;

electronic transactions: includes point-of-sale (POS) electronic transactions, as well as mobile apps, electronic funds transfer (EFR) and internet transactions;

EFT electronic funds and SWIFT bank transfers: the most commonly used payment method for international transactions. The majority of banks are connected to the SWIFT electronic network;

the Australian dollar (AUD) is now also part of the Continuous Linked Settlement System (CLS), an interbank transfer system for processing foreign exchange transactions simultaneously.

Debt Collection

Amicable phase

Parties are encouraged to negotiate and take “genuine steps” to settle commercial disputes prior to commencing proceedings. Parties in the Federal Court and Federal Circuit Court must file a “genuine steps” statement. Examples of such steps include settlement negotiations and informal settlement conferences with the other party.

Legal proceedings

If the amicable phase fails, proceedings will commence. The New South Wales (NSW) Supreme Court has a special list for commercial disputes, where it will proactively manage them to ensure an efficient resolution. Similar lists also operate for commercial disputes in the Supreme Courts of Victoria (Vic), Western Australia (WA) and Queensland (Qld).

If a corporate debt is overdue, uncontested, and over AUD 2,000, the creditor may issue a creditor’s statutory demand for payment of debt demanding payment within 21 days. Unless payment or an application to set it aside is made to the Court in this time, the company is presumed insolvent. The creditor may lodge a petition for winding-up of the debtor’s company. The presumption of insolvency lasts for three months following service of the statutory demand. For individuals, the process is similar, but proceedings are required to be commenced in the Fed Circuit Court or Fed Court.

In NSW, in debt recovery proceedings, a statement of claim must be personally served on the debtor, who must then pay the debt, or file and serve a defence on the creditor within 28 days (NSW), failing which default judgment may be entered against the debtor. There are different time frames for different states. If the debtor does not pay the debt and files a defence, orders will be made by the court to prepare the matter for hearing including discovery and the preparation and exchange of evidence that will be relied upon at the hearing.

During this phase, the parties may request and exchange particulars of the claim or defence made by the other party in the form of documents referred to in the claim or defence (e.g. copies of the relevant unpaid invoices and statements of account). If discovery is ordered, the parties will be required to exchange all documents that are relevant to their case. Otherwise, all documents which the parties wish to rely upon at the hearing must be included in their evidence. Before handing down judgment, the court will hold an adversarial hearing in which the witnesses of each party may be cross-examined by the other parties’ lawyers. Typically, straightforward claims may be completed within four to six months but disputed claims may last more than a year.

If a party is not satisfied with the judgment awarded by the court, it may appeal the decision. Appeals lodged against Supreme Court decisions are heard by the Court of Appeal in that state/territory. Any further appeal thereafter is heard by the High Court of Australia. The party seeking to appeal must seek leave and persuade the Court in a preliminary hearing that there is a special basis for the appeal, as the High Court will only re-examine cases of clear legal merit.

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Local Courts or Magistrates Courts (depending on the state/territory) hear minor disputes involving amounts up to a maximum of AUD 50,000 Tasmania (Tas), AUD 75,000 Western Australia (WA), AUD 100,000 (NSW, Vic, South Australia (SA)), AUD 150,000 (Qld) or AUD 250,000 (Australian Capital Territory (ACT), Northern Territory (NT)). Beyond these thresholds, disputes involving claims up to AUD 750,000 in NSW, WA, SA or Qld are heard either by the County Court or District Court. There is no County Court or District Court in Tas, NT or ACT. Claims greater than AUD 750,000 in NSW, Qld, SA, and WA are heard by the Supreme Court of each State. The Victorian County Court and Supreme Court have an unlimited jurisdiction. In the other states and territories, the Supreme Court hears claims greater than: AUD 250,000 in the NT; AUD 250,000 in ACT; and AUD 50,000 in Tas.

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Enforcement of a Legal Decision

A judgment is enforceable as soon as it is entered by the court. The plaintiff has up to fifteen years following the entry of judgment to pursue enforcement of an Australian judgment through Examination Notices, Garnishee Orders or Writs of Execution. Examination Notices force the debtor to provide information on its financial situation and assets, helping to establish a recovery strategy. The Garnishee allows the creditor to recover its debt (with interest and costs) directly from the debtor’s bank account or salary as well as from the debtor’s debtors,. Finally, the Writ orders a sheriff to seize and sell the debtor’s property in payment of the debt (together with interest and costs) owing to the creditor. As for foreign awards, enforcement in Australia is governed by statutory regimes (Pt 6 of the Service and Execution of Process Act 1992 (Cth) for judgments given in Australia and Foreign Judgments Act 1992 (Cth) for judgments given outside Australia) and common law principles. Recognition depends on whether a reciprocal recognition and enforcement agreement exists between Australia and the issuing country.

Insolvency Proceedings

Administration

A debtor company can be placed into administration by its directors, or by creditors that are owed money. The administrator will take full control of the company, and investigate and report to creditors as to the company’s business, property, affairs, and financial circumstances. There are three options available to creditors: end the administration and return the company to the director(s); approve a deed of company arrangement through which the company will pay all or part of its debts; or wind up the company

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Bankruptcy

Creditors who have a judgment debt in excess of $5,000 can serve the debtor with a bankruptcy notice. The debtor must pay the debt or apply to set aside the bankruptcy notice within 21 days of service, otherwise the debtor will be presumed insolvent. The creditor can apply to the Federal Circuit Court to bankrupt and appoint a bankruptcy trustee to the debtor’s estate. The trustee collects, protects and realises the debtor’s assets into cash, keeps the creditors informed about the debtor’s affairs and distributes any proceeds of sale of the debtor’s assets. Generally, bankruptcy lasts for three years, but can be extended if the debtor does not co-operate with the trustee.

Receivership

A receiver is appointed by a secured creditor who holds security or a charge over some or all of the company’s assets to collect the company’s assets to repay the debt owed to the secured creditor. If the process fails, a liquidation procedure may be initiated.

Liquidation

Creditors or a court may wind up a company, and appoint a liquidator who collects, protects, and realises the company’s assets into cash, keep the creditors informed about the company’s affairs and distribute any proceeds of sale of company assets. Upon completion of the liquidation, the company is then deregistered.

Last updated:November 2024