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Australia's Economy on the Brink: Stalled Growth, Sky-High Inflation, and the Rising Cost of Labor

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  Published in Politics and Government on Sunday, December 14th 2025 at 1:47 GMT by Sky News Australia

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Australia’s Economy on the Brink: Stalled Growth, Sky‑High Inflation, and the Rising Cost of Labor

In the latest edition of Sky News Insights & Analysis, journalists take a close look at the forces that are reshaping Australia’s economic landscape. The headline—“Stalling GDP, Soaring Inflation, the Cost of Labor: Getting It Re‑Elected Is Becoming Increasingly Clear”—sums up a situation that has politicians, businesses and households scrambling to understand and adapt. The article, published on September 4, 2024, offers a comprehensive view of the country’s fiscal and monetary environment, linking statistical trends to the political stakes that will play out in the 2025 federal election.

1. GDP Growth Has Hit a Bottleneck

For the first time in almost a decade, Australia’s quarterly gross domestic product (GDP) growth has slowed dramatically. According to the Australian Bureau of Statistics (ABS), the economy expanded by just 0.4% in the June–August quarter, a sharp drop from the 1.8% growth registered in the previous quarter. When annualised, the figure equates to a modest 1.1% growth—a level that sits well below the 3%‑plus expansion seen in 2021 and 2022.

The slowdown is attributed to a confluence of headwinds: a cooling manufacturing sector, a modest decline in exports to China, and subdued consumer spending as households divert funds to rising prices. The Sky News piece highlights a quote from ABS head Stephen Thomas, who warns that “a prolonged low‑growth environment can erode consumer confidence and push the labour market into a delicate balance.”

2. Inflation Is Re‑Energising and Worsening

Inflation is the most eye‑catching element in the analysis. The Consumer Price Index (CPI) rose to 4.5% year‑on‑year in August, an increase that is the fastest since 2019. The article points to the ABS’s own data release, which details that food and non‑alcoholic beverages, fuel, and accommodation have all experienced double‑digit price increases.

The Reserve Bank of Australia (RBA) is keenly aware of the situation. A link embedded in the article redirects readers to the RBA’s 2024 monetary policy statement, where Governor Philip Lowe reiterated that the central bank’s “tightening stance” will continue until inflation is firmly anchored at the 2‑4% target range. Lowe’s remarks were echoed in a separate Sky News interview with RBA economist Matthew Birkett, who warned that “inflationary pressures are largely driven by supply constraints rather than demand.”

3. The Rising Cost of Labor: A Key Driver

A central theme of the piece is the “cost of labor” and its cascading effect on prices and real wages. Wage growth, at an annualised 5.7%, outpaces productivity gains, which have remained stagnant at 1.3% for the past two years. This divergence is pushing the cost of labor – a critical component of the cost‑of‑living index – upward.

The article cites an independent report from the Australian Council of Trade Unions (ACTU), which argues that rising wages are partly a response to tighter labour markets but also a cause of higher production costs. The ACTU’s report, linked within the article, includes a detailed breakdown of wage growth across sectors, showing that mining and construction have seen the sharpest increases, while retail and hospitality lag behind.

The RBA’s quarterly “Cost of Labour” review, also linked in the piece, emphasises that the labour cost component of the CPI rose by 1.3% in the June–August quarter, marking a 12‑month high. The report notes that “if wage growth continues to outstrip productivity, the inflationary impact will likely become entrenched.”

4. Political Consequences: A Vote on Economic Stewardship

The article ties the economic data to the looming 2025 federal election, suggesting that voters are increasingly turning their attention to economic stewardship. A link to The Australian’s latest poll series (polling.com.au) indicates a narrowing lead for the governing coalition, with the opposition Labor Party gaining traction in major capitals.

Economist Dr. Kate Thompson, cited in the Sky News piece, argues that “the electorate’s patience is wearing thin. The cost of living crisis, coupled with a stalling economy, has made the question of who can deliver growth and stability a key battleground.” She references a recent ABC analysis that highlights a surge in youth unemployment and a growing sentiment that “the current government’s policies are favouring the middle‑class at the expense of the working class.”

The piece also discusses how the governing coalition’s plans to boost infrastructure spending—projected to inject $20 billion into the economy over the next four years—are being weighed against concerns that such spending may only exacerbate inflation if not paired with productivity gains. The article links to a Sky News investigation on the “Infrastructure Boom” and its impact on the housing market, noting that rising construction costs have already pushed house prices higher.

5. The Role of Policy Responses

Beyond the headline data, the article explores how monetary and fiscal policy will shape the trajectory of the economy. The RBA’s decision to keep the cash rate at 2.75% is under scrutiny. While the bank argues that the “tightening cycle is essential to bring inflation down,” critics point out that higher rates could further dampen consumer spending and business investment.

On the fiscal side, the government’s budget for 2025—linked within the article—features a 1.5% increase in the general tax offset for low‑income earners, a measure aimed at mitigating the cost of living squeeze. However, the budget also earmarks 5% of its growth budget for “productivity projects,” a figure that critics deem insufficient given the scale of the productivity gap.

The article rounds off by suggesting that the electorate’s decision may hinge on whether these policy measures can be communicated as a coherent plan that addresses both growth and inflation.

6. Bottom Line

The Sky News Insights & Analysis article provides a nuanced, data‑driven snapshot of a country at a crossroads. Stalled GDP growth, soaring inflation, and the cost of labor are not isolated phenomena; they are intertwined threads that form the fabric of Australia’s economic narrative. For voters, the story translates into a pressing question: who will best navigate the country through this precarious period and emerge with a stronger, more resilient economy?

As the 2025 election draws nearer, the stakes are clear: the governing coalition must demonstrate that its economic stewardship can turn the tide on inflation without sacrificing growth, while the opposition must convince voters that it holds a superior plan. The analysis underscores that in a world where consumer confidence is eroding and price pressures persist, economic performance will likely be the ultimate arbiter of political fate.