Breaking: RBA Confirms Strong Cyclical Upturn in Australian Markets

Australia’s economy is experiencing a remarkable cyclical upturn, with the Reserve Bank of Australia (RBA) officially confirming this positive shift during a recent parliamentary hearing. Despite global economic uncertainties, the Australian economy grew at its fastest annual pace in almost two years during the June quarter. This growth coincides with consumer spending finally picking up after a period of restraint.

While cyclical changes typically bring periods of adjustment, the current data reveal a surprisingly resilient economic performance. The unemployment rate remains at a historically low 4.2%, signifying stability amid these cyclical upheaval patterns. Furthermore, the UBS quarterly Evidence Lab survey shows consumer spending is surging, with buying intentions now at their highest level in six years. Notably, Australia’s top central banker stated on Monday that the economy is “in a good place”, highlighting that slowing inflation and a strong labour market provide policymakers with flexibility to ease policy further if needed. The RBA has already implemented a measured approach to policy easing, cutting rates in February, May and August to reach the current 3.6%.

RBA Confirms Strong Cyclical Upturn

In a clear signal of economic recovery, the RBA has confirmed that the Australian economy has entered a strong cyclical upturn, marked by significant improvements in key economic indicators.

Governor Bullock Outlines Improved Inflation and Employment Metrics

RBA Governor Michele Bullock recently highlighted that Australia has made “meaningful progress in bringing inflation down” with current figures now firmly within the target range of 2–3 per cent. This represents a decline from the inflation rate of 7.8 per cent recorded in late 2022. Specifically, underlying (trimmed mean) inflation fell to 2.7 per cent over the year to June 2025, alongside headline inflation of 2.1 percent.

Equally important, the labour market remains remarkably resilient throughout this cyclical change. The unemployment rate stands at 4.2 per cent in August, which is historically low. Additionally, the employment-to-population ratio hovers near record highs, with 1.1 million more Australians employed now than in mid-2022.

“Throughout this adjustment towards full employment, the economy has continued to expand,” Governor Bullock stated, emphasising that growth in economic activity has also accelerated since the previous RBA meeting.

Domestic Data Strong

With GDP expanding by 0.6% in the June quarter and 1.8% over the previous year, the Australian economy has grown faster than analysts had predicted.  According to RBA statements, “domestic data have been broadly in line with our expectations or if anything slightly stronger” since the August meeting.

This cyclical upturn has been mostly driven by household consumption, which has increased by 0.9% and contributed 0.4 percentage points to GDP growth overall. Particularly noteworthy, discretionary spending rose by 1.4 percent, with significant growth across tourism-related categories:

• Recreation and culture (+2.0 per cent)
• Transport services (+1.7 per cent)
• Hotels, cafes, and restaurants (+0.7 per cent)

The household saving ratio has consequently decreased from 5.2 per cent to 4.2 per cent, indicating growing consumer confidence in the economy’s trajectory amid these cyclical changes.

Government consumption also played a supportive role, growing by 1.0 per cent following subdued growth in the March quarter. This economic rebound is especially remarkable considering it occurred after a period affected by adverse weather events.

RBA Highlights Global Risks and Policy Flexibility

Amid the positive domestic outlook, the RBA remains vigilant about external threats that could disrupt Australia’s cyclical upturn. Global uncertainty has intensified, creating a complex environment for monetary policy decisions.

China’s Slowdown and Trade Tensions Raise Concerns

The RBA has expressed growing concerns about China’s economic performance, with Governor Bullock noting, “recent data have suggested that maybe they’re not doing quite as well, and it may be that the tariffs are starting to hit them a little bit”. This slowdown is particularly concerning as China represents Australia’s largest export destination.

Chinese property developers continue facing severe financial pressure, with asset prices remaining at “severely distressed levels”. A further indication of market apprehension regarding China’s prognosis is the Australian dollar’s 5% decline versus the US currency and 2% decline on a trade-weighted basis since November.

These developments pose significant risks, as the RBA warns that “if stresses in the Chinese economy and financial system intensified or broadened, they could spill over to the rest of the world (including Australia) through trade channels and an increase in global risk aversion”.

RBA Signals Room to Cut Rates

In light of these global uncertainties, the RBA has positioned itself to respond if necessary. The central bank explicitly stated that “monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia”.

The cash rate currently sits “above central estimates of the neutral rate”, providing the RBA with flexibility to implement further cuts if required. As a sign of ongoing easing, market participants already estimate “close to two further cuts in 2025 and another one in early 2026.”

Nonetheless, the Board remains cautious, acknowledging “a high degree of uncertainty about both aggregate demand and potential supply”.

Quotes From RBA Testimony on External Uncertainties

RBA officials have consistently emphasised the current global environment’s unpredictable nature. Governor Bullock described the situation as “particularly uncertain and unpredictable,” highlighting that “this whole unpredictability of tariffs I think is part of the problem here.”

The central bank’s May statement further reinforced this sentiment: “However, the global outlook has worsened and is more unpredictable than usual”. Meanwhile, the Board has explicitly acknowledged that “there is a risk that the recent pick-up in growth in domestic economic activity is not sustained”.

Although Australia cannot control global risks, the RBA maintains that its policy framework allows for appropriate responses to protect the domestic economy from cyclical upheaval stemming from external shocks.

Household Spending and Labour Market Show Resilience

Recent economic data demonstrates that Australia’s households are effectively weathering cyclical changes, providing a key foundation for broader economic resilience.

Real Income Growth Supports Consumption Recovery

For the first time since the pandemic, real wages are growing again, with the latest figures showing a 1.3% increase in the year to June 2025. This improvement is fueling consumer activity, with household spending rising by 0.5% month-over-month in July 2025. Notably, discretionary spending has rebounded after six consecutive quarters of contraction, with significant increases across health (+1.8%), transport (+1.5%), and miscellaneous goods and services (+1.5%).

Indeed, the economic outlook has brightened for households, with real disposable income projected to be approximately 8.75% higher in 2026-27 compared to 2023-24, supporting consumption growth.

Unemployment Remains Low

The labour market continues to exhibit remarkable stability through this cyclical upturn, with unemployment steady at 4.2% in August. Nevertheless, beneath this headline figure, some cooling is evident—employment decreased marginally by 5,400 positions. At this point, the trend unemployment rate has inched up to 4.3%, compared to 4.0% at the beginning of 2025.

Full-time employment increased by 12,100 to 10,101,800 people, and part-time employment rose by 6,000 to 4,541,200 people. The employment-to-population ratio remains high at 64.1%, signalling continued labour market strength despite slower job creation.

Mortgage Belt Drives Spending, UBS Finds

Consumer sentiment data reveals a significant shift in household financial behaviour. The latest UBS survey recorded consumer spending intentions at a net balance of +12 in the third quarter, the highest level in six years. Middle-income households appear to be the primary beneficiaries of improving conditions. Given that inflation pressures are easing, more than 50% of respondents indicated they will be able to build larger savings in the year ahead.

RBA Prepares For Future Shifts in Economic Conditions

With Australia’s cyclical upturn firmly established, the Reserve Bank is strategically positioning itself for various economic scenarios that might unfold soon.

Interest Rate Outlook Remains Data-Dependent

The RBA has emphasised that future monetary decisions will be guided by incoming economic information rather than predetermined paths. Currently, the cash rate stands at 3.6% after being reduced by 75 basis points since early 2025. The Board remains “attentive to the data and the evolving assessment of risks”, acknowledging that forecasts have inherent limitations. As the RBA’s Assistant Governor pointed out, “We are data dependent in the sense that incoming data affects our view of where the economy is today and the outlook”.

Further Easing If Inflation Undershoots

Undoubtedly, the RBA forecasts suggest underlying inflation will moderate to around the midpoint of the 2–3% target range. These projections were based on market expectations of “further modest easing of monetary policy”. Accordingly, the bank stands ready to act if circumstances change, stating “there is also a risk that the recent pick-up in growth in domestic economic activity is not sustained”.

RBA’s Dual Mandate and Future Decisions

The RBA’s actions will now continue to strike a balance between its dual mandate of full employment and price stability. As Governor Bullock explained, “Low and stable inflation is important because it means that households and businesses can plan, invest and create jobs without having to worry about inflation”. Ultimately, this framework enables the bank to respond effectively to future cyclical changes while preserving economic gains made during the current cyclical upturn.

Conclusion – Cyclical Upturn

Australia’s economic resilience stands as a testament to effective monetary policy amid global uncertainties. The strong cyclical upturn confirmed by the RBA marks a significant shift after years of pandemic-related challenges. Undoubtedly, the combination of falling inflation, robust employment figures, and renewed consumer confidence paints an optimistic picture for the nation’s economic future.

This positive momentum reflects several key achievements. First, inflation has returned to the target range while unemployment remains historically low at 4.2%. Second, real wage growth has resumed after a prolonged pause, empowering households to increase discretionary spending across various sectors. Third, rising household consumption, particularly in tourism-related categories, clearly demonstrates renewed consumer confidence.

Nevertheless, certain external factors require careful monitoring. China’s economic slowdown and ongoing trade tensions present genuine risks that could potentially disrupt Australia’s growth trajectory. The RBA, however, has positioned itself strategically by maintaining policy flexibility. The current cash rate of 3.6%, following three rate cuts since early 2025, provides room for further adjustments should global conditions deteriorate.

Above all, the RBA’s commitment to a data-dependent approach ensures that monetary policy remains responsive rather than rigid. This balanced strategy allows policymakers to effectively navigate both domestic needs and international pressures. Though challenges undoubtedly remain, Australia’s economy appears well-equipped to sustain its cyclical upturn while weathering potential global economic storms ahead.