"Ongoing weakness in the private sector has seen the economy stall in 2025 – putting the focus back on immediate policy reforms needed to get investment and productivity moving again. We cannot waste any more time getting our vital policy settings right and embarking on meaningful economic reform," said Innes Willox, Chief Executive of national employer association the Australian Industry Group.
Australia's GDP growth rate was unchanged at 1.3% p.a. in the March quarter of 2025, materially below expectations and official forecasts for a continued recovery towards 1.5%. All major components weakened, with the contribution of private demand slowing in the quarter, while public demand and trade subtracted from growth.
"The government stimulus that accounted for the majority of growth in 2024 has now tapered off. Without a material uplift in private sector investment and productivity to compensate, this has left the economy listing.
"It is natural and appropriate that government spending is now moderating – Australia cannot spend our way out of economic trouble forever. But the dismal conditions in the private sector need to be urgently corrected to take up the slack.
"With the impact of US trade barriers about to flow through, coupled with our paralysis on real productivity reforms, Australia is at risk of becoming an economic sitting duck.
"Governments can no longer hope a private sector recovery will simply materialise on its own. Getting productivity and investment moving – and doing so right now – must be at the forefront of minds in Canberra and around our state capitals," Mr Willox said.
Consumer and industrial sectors continue to struggle
The economy continues to rely on the non-market sector to drive growth. While industry output increased by 1.2% p.a. in the quarter, this figure was lifted by a much higher 2.6% p.a. growth rate in non-market industries. These are primarily government-funded and insulated from the pressures of poor business conditions.
Consumer and industrial sectors continue to struggle. Mining, manufacturing and professional services are now in technical recession, while growth remains poor in construction, retail and accommodation & food.
"The handover from public to private-sector led growth has yet to materialise as hoped. With consumer spending still weak and industrials facing hard conditions, business conditions remain anaemic across much of the private sector," Mr Willox said.
Productivity goes nowhere
Unfortunately, the much hoped-for productivity turnaround has yet to materialise. In fact it doesn’t even appear to be on the horizon. Labour productivity showed zero increase in the March quarter, and is worryingly 0.9% lower than it was a year ago. Unfortunately, the Fair Work Commission's determination yesterday looks even more divorced from economic reality as each day passes.
The market sector eked out a tiny 0.1% productivity uplift in the quarter, which was cancelled out by continuing falls in government-supported (non-market) sectors. As a result, labour productivity is now worse than it was on the eve of the pandemic.
"Productivity is the well-spring of national wealth, and we cannot let productivity continue to decline quarter after quarter," Mr Willox said.
Investment pulls back in face of uncertainty
Business investment weakened again, with non-mining investment falling by half a percent in the quarter. Machinery and equipment investment – essential for raising industrial productivity – fell by a steeper 1.7%.
"The combination of global uncertainty and poor local conditions is seeing businesses pull back on their investment commitments. As business investment is a leading indicator, this augurs poorly for a turnaround in private sector growth or productivity materialising later in 2025," Mr Willox said.
Labour market dependence on government spending continues
The labour market remains the sole bright spot in the economic data, with hours worked rising by 2.3% over the last year. However, the majority of employment growth remains dependent on government funding, with around two thirds of the increase in the quarter coming from the non-market sector.
"Labour market resilience is not sustainable if dependent on ever-increasing taxpayer funding for non-market job creation. Persistently negligible levels of job creation in the private sector will lead to worsening labour market outcomes as government spending continues to moderate," Mr Willox said.
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