Against a difficult global economic backdrop, Australia’s economy continues to improve. Growth has picked up, inflation has moderated substantially, the unemployment rate remains low, real wages are growing again, and interest rates have started to fall. While Australia has not been immune to global challenges, the economy is well placed to navigate a more volatile and uncertain global environment.
The 2025–26 Budget includes measures to address near-term cost-of-living pressures and support future economic growth. These measures are expected to support household incomes and a gradual recovery in consumption. The labour market has outperformed expectations, and although the unemployment rate is expected to gradually rise, it will remain near historical lows. Business investment is also expected to continue to grow supported by infrastructure spending and the transition to a net zero economy. A recovery in dwelling investment is also anticipated, as capacity constraints ease and housing supply responds to elevated demand.
Nevertheless, risks remain. Global economic growth is subdued and escalating trade tensions pose significant downside risks to global trade and financial market stability. These factors are likely to weigh on business and consumer confidence. At the same time, structural transitions – such as the energy transition, accelerating technological change, demographic ageing, and rising demand for care – will continue to reshape Australia’s economic landscape. Lifting productivity growth remains crucial for sustaining long-term economic growth and rising living standards, and we will continue to support the government's productivity agenda.
PM&C will continue to support the government in implementing its economic strategy, including delivering cost-of-living support, coordinating national responses to emerging challenges, and advancing long-term reforms in areas such as energy, skills and care. The department also plays a central role in supporting the government’s fiscal objectives – ensuring spending is well targeted, improving budget sustainability, and strengthening economic resilience over time.
Looking ahead, the department will work across the government to help position the economy to adapt to long-term shifts while continuing to support rising living standards, greater economic security, and sustainable public finances.
PM&C plays an important role coordinating efforts across the APS to capture the opportunities of the economic transformation towards a net zero economy and support the achievement of Australia’s domestic emission reduction targets. Efforts in 2025–26 will focus on finalising Australia’s 2035 emissions reduction target and the government’s Net Zero Plan, along with finalising Australia’s first ever National Climate Risk Assessment and National Adaptation Plan.
PM&C continues to support the government’s Future Made in Australia agenda, to capture the opportunities of the net zero transformation and strengthening Australia’s economic resilience and security. This includes a focus on attracting investment in key industries, making Australia a renewable energy superpower, strengthening Australia’s supply chain resilience, and giving businesses, communities and individuals opportunities to benefit from the net zero transformation.
As Australia contends with more frequent, complex and intense weather events, its ability to adequately anticipate, prevent, absorb and recover from natural disasters has never been so critical. During the 2024–25 higher-risk weather season, Australia experienced record-high temperatures, 12 tropical cyclones (the most since 2005–06, with 5 impacting the Australian coast), extreme fire dangers concentrated in Western Australia, South Australia and Victoria, and major flooding in Queensland, New South Wales, Western Australia and Tasmania. The Independent Review of Commonwealth Disaster Funding (the Colvin Review) forecasts the total economic cost of natural disasters will increase from $11.8 billion per annum in 2023–24 to $40.3 billion per year in 2049–50, with the Australian Government disaster recovery liability expected to grow to $8.8 billion per year by 2049–50.
PM&C will continue to support the government in reforming the disaster management system, with a focus on risk reduction and resilience, and ensure the system is fit for purpose and continues to safeguard Australia’s people and its economy.