australia's economic growth

What is economic growth?

As per the Oxford Dictionary, economic growth can be defined as an “increase in the amount of goods and services produced per head of the population over a period of time”. Economic growth has often been considered one of, if not the most important, policy objectives, as it makes it possible to obtain other economic and social goals.

How is economic growth measured?

Economic growth is measured by the annual rate of change in real gross domestic product, abbreviated to real GDP. GDP is defined as the “total market value of all final goods and services produced in an economy over a period of time”, with real GDP being adjusted for inflation (Dixon & O’Mahony, 2025). Economic growth is therefore calculated as a percentage increase in the value of goods and services produced in an economy over time, but generally, in one year, using the equation: While GDP can effectively measure the monetary value of final goods and services produced in a country’s economy, it cannot directly measure a country’s overall living standards and welfare(Callen, 2025). This is because GDP does not capture important factors that influence well-being, such as environmental consequences, income distribution, the features of quality of life, including leisure time, and unpaid work, including volunteering and household maintenance(Callen, 2025). So, although GDP is indicative of economic activity, it does not accurately reflect or contribute to material well-being.

What is the difference between economic growth and ecologically sustainable growth?

The debate over whether economic growth and ecologically sustainable economic growth can coexist has been ongoing, as economic growth often competes with environmental sustainability due to insufficient policies designed to protect the environment (Cohen, 2020). The difference between economic growth and ecologically sustainable economic growth is that the latter seeks to pursue and maintain economic growth without harming the environment. Some business and political leaders hold little regard for the environment’s welfare when attempting to achieve economic growth, resulting in various environmental concerns such as pollution, natural resource depletion, and habitat loss; yet, conversely, these practical limitations can hamper economic growth and long-term stability (Alistair Marjot, 2024). If economic growth could be achieved alongside ecological sustainability through the adoption of sustainable policies aimed at protecting the environment, such as the investment in green technologies and renewable energy, then long-term economic growth will be supported. This is because it would create new jobs in clean energy industries, and according to the International Monetary Fund, “the transition to net zero carbon emissions by 20250 could increase global GDP by 7 per cent”.

What determines economic growth, and how does this impact the economy?

Numerous determinants impact economic growth. A current pressing issue surrounding economic growth is productivity. In his speech to Insiders after the 2025 election win, Treasurer Jim Chalmers said that the main “agenda” of Labor’s second term surrounded increasing unproductivity (ABC News, 2025). Productivity is such a significant issue in economics, as a lack of productivity stunts economic growth. When productivity decreases, business output decreases, and wages remain similar; hence, the cost of business increases at a rate that output does not match. As a result, GDP decreases as output declines or stays constant. As wages do not increase, consumption decreases, and thus, living standards decrease. Numerous factors can influence productivity. These include education levels, resource allocation and management efficiency (Reserve Bank of Australia, 2022). When people have higher levels of education, they can gain greater skills and qualifications, which leads to greater productivity and promotes economic growth. Further, if management is efficient, resources can be better allocated and utilised amongst workers, leading to greater productivity and economic growth. Other factors that influence productivity include technological advancement (the greater the technology, the greater the productivity) and demographic makeup (i.e, the older the population, the less productive they are). Globalisation is another key determinant of economic growth, as it impacts the ability of nations to trade and hence, grow their economy. Further, well-globalised countries typically experience elevated levels of trade. If a country is well globalised and politically and economically stable (due to fiscal and monetary policy), it may also receive greater foreign investment. Such investments cause economic growth, as they increase aggregate demand, which is qualitatively the same as GDP.

What are the benefits of economic growth, and how do these affect the distribution of income and wealth within society?

Numerous benefits of economic growth promote social stability and justice, despite some negative environmental impacts. These benefits include reduced unemployment and poverty, along with greater incomes, which lead to higher living standards (Dixon & O’Mahony, 2025). Faster economic growth indicates an increase in real GDP per capita (GDP per person), as real wages rise and households have more disposable income, thereby helping individuals suffering from poverty and enhancing social justice by addressing inequalities. Additionally, economic growth can lead to higher wages for businesses, which boosts job creation and investment, thus reducing unemployment and further stimulating economic activity (Dixon & O’Mahony, 2025). As increased incomes and employment lead to more consumption and investment, innovation and technological advancements are fostered, and tax revenue also rises, allowing governments to invest more into public goods like healthcare, infrastructure, and education (Sen, 2021). These benefits of economic growth can greatly improve living standards. Although economic growth generally leads to increased overall wealth, its benefits often flow unevenly to high-income earners and highly skilled workers rather than to lower-income earners and lower-skilled workers, due to the wealthy generally getting wealthier and globalisation, which gives rise to widening income inequality (Dixon & O’Mahony, 2025). Therefore, it is not a definitive solution to lessening income inequality.

What effects on an economy do too high or too low economic growth rates have?

When economic growth is too high, it can lead to an overproduction of negative externalities, such as urban squalor, environmental degradation, and depletion of non-renewable resources. Contrastingly, if economic growth is too low, it can lead to a decrease in living standards (as output is less than input, wages stagnate, reducing purchasing power and hence lowering standards of living), deflation, unemployment, recession, and poverty (as living standards decrease).

How has Australia’s economy performed over the past five years?

Australia’s economic performance over the past five years has been overall positive, but there are many areas for improvement. Reducing inflation has been a major win for the economy (International Monetary Fund, 2024). After the COVID-19 pandemic, inflation spiralled, peaking at 7.8% in December 2022 (with trimmed mean inflation also peaking in December 2022, at 6.8%) (Australian Bureau of Statistics, 2025d). However, due to strong monetary policies, Australia successfully reduced its inflation rate back within the target 2-3% range (including trimmed mean inflation) (Reserve Bank of Australia, 2025; International Monetary Fund, 2024). In key industries such as insurance and rent, inflation has decreased by ~54% and ~33% respectively from March 2024 to March 2025. Job creation remains strong, without placing pressure on inflation (International Monetary Fund, 2024). Interest rates have also seen cuts, with rates dropping to 3.85% (Chalmers; Board, 2025). However, many facts worry economists about Australia’s economic performance. Economic growth rate decreased from 1.9% in Q1 2024 to 1% in Q2 (International Monetary Fund, 2024). This is especially impacted by private consumption rates dropping to 0.5% per year, and private business investments falling to 1.6% per year (International Monetary Fund, 2024). Inflation in pet and medical services has risen, from ~4.75% in March 2024 to ~5.13% in March 2025. Another particularly worrying factor is the usage of negative gearing and capital gains tax breaks (International Monetary Fund, 2024). In the 2022-23 financial year, capital gains and negative gearing cost the government $20 billion in lost tax revenue