Australia’s economy is finally showing signs of improvement. After a difficult period where economic growth barely kept pace with population increases, things are starting to look up. Think of it like a car that’s been stuck in first gear finally shifting up—we’re not racing yet, but we’re definitely moving forward.

Prices at the grocery store and fuel pump aren’t climbing as quickly as they were. The Reserve Bank of Australia (RBA) – which sets interest rates – sees this as a positive change and is expected to respond by lowering rates soon. This is good news for homeowners with mortgages and businesses looking to expand.

For everyday Australians, this gradual improvement means more stability. It’s like the economic weather forecast changing from stormy to partly cloudy—not perfect, but certainly better than what we’ve been through.

What is a Per Capita Recession and Why Should You Care?

When economists talk about a “per capita recession,” they’re measuring whether the economy is growing fast enough to improve life for the average Australian. Unlike a traditional recession that looks at overall economic growth, a per capita recession occurs when economic output per person declines—meaning there’s less to go around for each of us.

This matters because it affects your daily life more directly than headline GDP figures. You don’t experience the national economy growing—you experience your personal share of it.

For seven consecutive quarters—nearly two years—Australia experienced declining GDP per person, the longest per capita recession on record. This meant many Australians saw their living standards stagnate or decline despite the overall economy technically avoiding a recession.

The December Turning Point: What Changed?

The December 2024 quarter finally brought positive news. GDP per capita grew by 0.1% – a small but significant improvement that officially ended the per capita recession. Overall economic growth reached 0.6% for the quarter and 1.3% for the year.

What drove this modest improvement? Three key factors:

1. Household spending increased by 0.4%, particularly in retail and hospitality
2. Export performance strengthened, especially in resources and services
3. Government investment continued to support economic activity

While these numbers suggest recovery, the 0.1% per capita growth represents just the first step on a much longer journey toward meaningful improvement for most households. The GDP data for the March quarter is scheduled to be released on 4 June, and the consensus expects quarterly growth of 0.5% according to Trading economics.

Are Living Standards Improving?

Despite the end of the per capita recession, many Australians aren’t feeling significantly better off. Here’s why:

Productivity -how much value we create per hour worked -remains at a 60-year low. Without productivity growth, sustainable wage increases become harder to achieve.

The household savings ratio sits at 3.8% -higher than the December quarter but still well below pre-pandemic levels. This suggests many Australians remain cautious about their financial future despite the official end of the per capita recession.

Population growth continues to run at nearly 2% annually, primarily through migration. While newcomers fill critical labour shortages and boost overall economic activity, rapid population growth without matching productivity improvements means economic gains are spread more thinly.

What’s Next for Your Household Budget?

The economic outlook for 2025 offers both challenges and opportunities for Australian households such as:

• Inflation relief: Price pressures are gradually easing, with inflation expected to settle around 2.5% by year-end. This should reduce pressure on household budgets compared to recent years.
• Interest rate cuts: The RBA is anticipated to continue lowering rates. This would provide relief for mortgage holders after years of rate increases.
• Wage growth: Modest improvements in wages are expected, though probably not dramatic enough to significantly outpace inflation in the near term.
• Housing affordability: Despite potential interest rate cuts, housing affordability remains challenging, especially in major cities where population growth continues to drive demand.

For average households, these factors suggest gradual rather than dramatic improvements in financial wellbeing through 2025.

Beyond the Numbers: The Recovery Australians Actually Feel

The end of Australia’s per capita recession represents an important milestone, but economic statistics only tell part of the story. The recovery that matters is the one people experience in their daily lives—in their job security, spending power, and overall financial confidence.

By these measures, Australia’s recovery remains a work in progress. While we’re no longer in a technical per capita recession, the modest 0.1% growth in GDP per person suggests the beginning of recovery rather than robust improvement.

The coming quarters will reveal whether this nascent recovery strengthens into something more substantial that average Australians can feel in their daily lives.

So, has Australia really recovered from its per capita recession? Technically yes, but meaningfully? That recovery is still underway. The real question for most Australians isn’t whether economists declare the recession over, but whether their own financial situation is improving – and for many, that improvement remains elusive for now.

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The information contained in this article is believed to be reliable as at May 2025 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, property, financial and taxation advice before acting on any information in this article.

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