Australia has been reeling under the impact of inflation, and the situation seems to worsen daily. Recently, the Reserve Bank of Australia’s decision to increase the cash rate by 25 basis points to 4.10% will make borrowing more expensive and could slow household spending and business investment.
As Australia continues to be affected by inflationary pressures and global headwinds, Dr John Hawkins has emerged as a prominent voice offering insight into the nation’s outlook.
Dr John Hawkins is the head of the Canberra School of Government at the University of Canberra. He was formerly a senior economist at the Reserve Bank of Australia, the Australian Treasury, and the Bank for International Settlements, and he also served as secretary to the Senate Economics Committee.
In an exclusive interview with International Finance, Dr John Hawkins discusses the economic outlook for Australia, cost-of-living crisis affecting the country, and the Reserve Bank of Australia’s rate hikes. Additionally, he shares his views on economic resilience, the stability of small and medium enterprises, and the debt burden on Australian households.
International Finance: What trends are currently shaping consumer confidence in Australia, and how might they influence spending patterns?
Dr John Hawkins: Consumer confidence is well below its long-term average. The main cause is ‘cost of living’ pressures. The Reserve Bank of Australia’s decision to increase interest rates again at its March meeting, and conjecture that it is likely to move again, could well see consumer confidence slump further.
How is Australia balancing economic growth with sustainability and climate-related challenges?
Australia had introduced an emissions trading scheme, which operated from 2012 to 2014 with a temporary fixed price. It would have allowed greenhouse gas emissions to be reduced in the most efficient manner, but was scrapped following a change of government at the 2013 election. Australia now has a target of reducing emissions by 43% from 2005 levels by 2030 and achieving net zero by 2050. It is being implemented by a range of sectoral plans. Treasury modelling in 2025 concluded the transition is consistent with the Australian economy growing by around 80% from 2025 to 2050.
What impact are recent trade developments having on Australian exporters and importers?
The United States takes less than a tenth of Australian exports, so the direct impact of higher US tariffs is modest. More important will be the impact of US tariffs on China and our other major trading partners.
How resilient is the Australian economy to fluctuations in global commodity prices?
Iron ore, coal and gold are significant sources of export revenue, so commodity price movements are important. But the floating exchange rate serves as a buffer as the Australian dollar tends to depreciate when commodity prices fall.
In what ways are small and medium-sized businesses faring in the current economic climate?
Liaison by the Reserve Bank in 2025 found that, while improving, business conditions for small businesses are weaker than for large businesses. Most small businesses, however, remain profitable and can readily access credit.
How is household debt affecting economic stability and purchasing power in Australia?
Household debt remains high by historical standards. But the debt is concentrated on households that can manage it. Less than 1% of households with home mortgage loans are significantly in arrears.
Are there sectors in Australia that are positioned for growth despite broader economic uncertainty?
Most areas of the economy are likely to keep growing as, unlike some OECD countries, the Australian population is still expanding.
How are wage growth and cost-of-living pressures shaping the everyday experience of Australians?
As evidenced by its being the dominant concern in opinion polls, cost-of-living pressures are weighing heavily on many Australian households. With consumer prices currently growing by 3.8% while wage growth is 3.4%, many Australian households are finding it harder to afford everyday purchases.
What role is technological innovation playing in transforming traditional industries in Australia?
Business investment and firms’ investment intentions have picked up recently. The renewable energy transition and construction of data centres are examples of technological innovations driving this investment.
Looking ahead, what are the most significant challenges and opportunities for Australia’s economic future?
Geopolitical uncertainty is a major challenge. Domestically, Australian productivity growth has been weak in recent years. But the recent re-election of the government with a comfortable majority increases the opportunity for productivity-enhancing economic reforms.