Australia's "wait and see" economy: Is the music slowing?

25 June 2025

In the movie "Margin Call" there is the famous board room meeting where CEO John Tuld (played by Jeremy Irons) meets with his board and senior management to decide what to do about the Investment Bank's perilous exposure to Mortgage Backed Securities (MBS). The decision hinges on the CEO's instinct for the direction of the economy. The question is asked "is the music just slowing or has it stopped?"

Right now I am asking myself the same question about the Australian Economy.

Talking with our clients, and being on the receiving end of their real-world decisions provides an unfiltered, grass-roots snapshot of today’s Australian economy. We are hearing of deferred projects, low demand for capital equipment, and firms delaying their traditional EOFY vehicle purchases.

Long before they show up in official statistics, these signals warn of a broader “wait-and-see” mindset taking hold across the economy.

In addition to the "usual suspects" that either cause or indicate toughening economic conditions, something we have never seen before has arrived.

But first, let's set the scene...

The Australian economy has paused

Because mainstream media isn't calling it, many businesses are cautiously optimistic. But anecdotally, the signs are worrying. Here's what I am observing...

A major construction-sector client recently suspended work to protect its cash flow, forcing suppliers to slash headcount and expenditure.
A contact in the automotive-finance industry describes a soft end-of-financial-year car-sales month (in sharp contrast to last year), with lower consumer demand from business as well as retail.
A data-analytics company with both government and major-company contracts is seeing an unprecedented decline in retainers and new-business enquiries.
Reports from a major Advisory Board chair (one of those CEO forums) confirm that business owners, directors and CEOs are experiencing slowing conditions across a wide range of SMEs.

Are these isolated stories or the early tremors of a broader slowdown? Official data suggests the latter:

GDP Growth Has Stalled
Australia’s headline GDP barely budged in the March quarter, expanding just 0.2 per cent, down from 0.6 per cent in the December quarter (1). In its May Statement on Monetary Policy, the RBA noted that while inflation has returned to within its 2–3 per cent target band, global uncertainty (notably U.S. tariffs and domestic consumption weakness) have clouded the outlook (2).

Businesses Aren’t Spending
The NAB Monthly Business Survey for May 2025 found its headline business-conditions index fell by 2 points to 0, sitting below its long-run average of +6 (3). Similarly, the ABS’s Business Indicators release for March 2025 showed private new capital expenditure fell by 0.1 per cent, with machinery and equipment investment down 1.3 per cent despite a slight uptick in buildings and structures (4).

Consumers and Corporates Hit Pause
Household consumption disappointed in the March quarter, growing less than the RBA had anticipated. Retail turnover and sentiment measures remain weak, with NAB’s confidence index barely positive at +2 (5). In the automotive sector, the FCAI reported April 2025 new-car sales down across almost every state: NSW (–2.9 per cent), QLD (–2.6 per cent), SA (–12.1 per cent) and WA (–10.1 per cent) (6).

What Does This Mean for Business?

Well, obviously it's not good. Tough conditions will flow through to business...

Extended cost discipline. With downstream clients deferring work, pressure to cut overheads will flow through the supply chain.
Tenuous labour market. Unemployment has held near 4.1 per cent in May 2025 (7), but any further slackening could prompt hiring freezes or layoffs.
Monetary easing likely. Market-implied probabilities for an RBA rate cut in July exceeded 70 per cent. Though officials warn ongoing inflation risks could slow the pace of future easing. And the Government is shielding power price pressures and other impacts through subsidies.

Global uncertainty, rising energy costs, and a business-unfriendly federal government

Global Uncertainty Amplifies Downside Risks
Escalating trade tensions and policy volatility overseas have seeped into boardrooms here, with nine in ten Australian directors now naming global uncertainty as the top threat to growth (8). The OECD’s June 2025 Outlook similarly warns that “heightened policy uncertainty” is weakening global demand and could shave off as much as 0.5 percent from Australia’s growth over the next two years (9). In this climate, firms are loath to commit to new exports or overseas investment, instead hoarding cash and watching for clearer signals on foreign-market access.

Rising Energy Costs Squeeze Margins
Australian businesses now confront electricity price increases of up to 50 percent in some regions, with average standing-offer bills set to climb by 8–9 percent from July 1, 2025 (10). The Australian Energy Regulator attributes these hikes to surging wholesale-market costs driven by unplanned coal-plant outages and tight gas supplies and rising network-upgrade charges (12). Small- and medium-enterprises, in particular, face energy bills up by $300–$400k annually, forcing many to retrench production hours, pass on costs, or defer capital investments in energy-intensive equipment.

Regulatory Headwinds under a “Business-Unfriendly” Government
On the domestic front, corporate Australia is bristling at what it sees as increasingly onerous regulation. The Business Council’s “Big Five” election questions decry our current settings as “uncompetitive” and warn that without tax and labor-law reform, critical investment will continue to stall (13). Compliance and red tape now rank second only to energy costs among boardroom concerns, with 67 percent of directors expecting further regulatory tightening in the year ahead (8). Combined with global and energy pressures, this “business-unfriendly” backdrop has many firms choosing to hunker down rather than hire or expand.

Political Headwinds: Ideology Over Investment
On the political front, many business leaders view the Albanese Labor Government as prioritizing union-friendly reforms, expanded social-welfare spending and other non-productive measures over policies that directly support growth. In the Australian Industry Group’s latest Industry Expectations Survey, a clear majority of respondents flagged government bias toward labor-market and welfare agendas (rather than tax relief, deregulation or direct business incentives) as a key source of investment uncertainty (14).

Similarly, the Business Council of Australia cautioned in its April opinion piece “When business loses, Australia loses bigger” that a “fixation on welfare and workplace agendas” risks sidelining the very firms that generate jobs, innovation and revenue (13).

This perceived ideological hostility to business (not to mention repeated signals that unions’ demands will take precedence) has prompted many CEOs to delay hiring, defer capital projects and hoard cash rather than commit to expansion.

AI and the Employment Question: A Double-Edged Sword

We are no longer waiting for AI to hit; it has arrived and is already taking jobs.

Recently, my wife and I decided to eat out and began ringing around our usual haunts.

"Hello, welcome to the Beer and Skittles. This is Annabel your Automated Agent."

Annabel did an excellent job of checking bookings and informing us that a table wasn't available. We called another pub where the same voice (now named "Janice") described options, checked bookings and completed a reservation.

If they hadn't owned-up to being AI Agents we might not have guessed; they were that good. If anything - too good...

Instead of the usual clueless scatterbrain, the AI Agent was focused, helpful, and efficient.

Could accelerating AI adoption trigger a fresh wave of job losses and deepen the slowdown?

Even before AI job losses impact, Australia has seen an unexpected dip of 2,500 jobs in May 2025, underscoring fragility in both full-time and part-time work (5).

Optimistic OECD forecasts suggest net AI efficiency gains of around 0.17 per cent of GDP by the mid-2030s (15), but sobering estimates warn up to one-third of Australian workers could face displacement by 2030 (16), a risk the ACTU echoes with its call for urgent legislative protections (17).

Academics caution that cost-cutting motives often outweigh productivity claims, with roles from administration to customer service already under threat (18).

Australia’s Service-Sector Exposure: A Vulnerable Majority

Australia’s economy today hinges less on coal mines or steel mills and far more on human-driven services.

World-bank data shows the services sector contributed 66.3 per cent of output in 2020. By conservative estimates, services account for roughly two-thirds of GDP and that share has trended upward for decades.

According to the ABS, services made up 80.0 per cent of total production by 2017–18, up from 72.8 per cent two decades earlier (7)

Crucially, services also employ the vast majority of Australians. Roles in health, education, finance, professional services, hospitality and retail encompass over three-quarters of the workforce, meaning even a small wave of AI-driven redundancies could instantly tip tens of thousands into unemployment.

In such a services-heavy economy, automated layoffs in call centres, accounting, legal support or administrative functions don’t just shave jobs in isolation they cascade through cafés, taxis, childcare and cleaning services that rely on those workers’ incomes.

Put bluntly, Australia’s disproportionate reliance on services amplifies the risk that AI-induced job losses could have an immediate and widespread economic impact turning targeted automation into a broader slowdown in consumer demand, business confidence and ultimately GDP growth.

We've seen this before - "back office automation."

As a species, one thing we are good at is finding a better tool for the job. Do you think when they invented the wheel they could see a day when human made tools took over the world?

Australia’s history with back-office automation offers a sobering precedent for today’s AI revolution.

In the late 1980s and 1990s, banks, insurers and accounting firms (and anyone employing truck-loads of typists and people filing paper) shed nearly 100,000 clerical roles as mainframe systems and early office-automation software supplanted typing pools and ledger-entry teams.

I was there working in a large bank when we were all handed a computer and told "type your own memos, letters, reports, and emails ." Documents went from pages with chapters to short notes typed with two fingers. For the first time they were actually read. And a legion of typists and receptionists were shown the door.

Now, artificial intelligence threatens a far larger wave of displacement: a 2024 report by the Social Policy Group warns that, if current adoption rates continue, up to one-third of Australia’s workforce could face a period of unemployment by 2030 (16).

Mentioning "by 2030" might lull some into thinking "we'll worry about it then." But we are on the ramp-up; Annabel and Janice are already answering the phone.

Answering the phone and automated restaurant bookings is one thing, but recently a Sydney medical reception team was dismissed en masse and replaced overnight by an AI-powered phone system (24) an echo of the “new outsourcing” described by UTS’s Associate Professor Giuseppe Carabetta, who warns routine and entry-level roles are most vulnerable (23).

As in the back-office automation era, businesses driven by cost-cutting may embrace AI swiftly, but the cascading effects on livelihoods, consumer spending and broader economic confidence could be immediate and profound.

Modelling by technology consultancy Moroku suggests AI could shrink the Australian job market by around 11 per cent, some 1.5 million fewer workers, by 2030, with the hardest hits concentrated in white-collar and administrative roles (22). Even in moderate-adoption scenarios, annual salary expenditure could fall by tens of billions of dollars, eroding income-tax and GST bases and amplifying the fiscal drag of higher unemployment.

Let's face it. As Australia teeters on the knife edge of economic uncertainty; AI driven job losses could be more than just the straw that breaks the camel's back. More like a concrete block.

The Unreliable Crystal Ball

Might be panicking for nothing.

Forecasting the road ahead is never an exact science and some indicators suggest the picture isn’t uniformly bleak. Australia’s unemployment rate remains near multi-decade lows (thanks in no small part to a huge NDIS dependent sector and record levels of Government employment), household savings ratios sit above long-run averages, and strong commodity prices continue to buoy mining-region economies (as long as China doesn't tank).

The Federal Government’s record infrastructure pipeline backed by both federal and state budgets should prop-up construction and maintenance work once budgetary cycles reset. Australian's can pay back the borrowings later. And/or, more aggressive taxation which they are already talking about.

Meanwhile, pockets of consumer resilience in tourism and digital services hint at opportunities for nimble operators.

In short, while caution is warranted, businesses that balance prudence with selective investment by leveraging healthy balance sheets, targeting growth niches, and tapping government infrastructure spending, may find a way to ride through.

And lets not forget the Albanese government is holding a productivity summit in August 2025 to gather ideas and build consensus on policies to boost Australia's economic growth and productivity. The government aims to address declining productivity growth, which has persisted for over a decade, and to "create a more dynamic, resilient, and prosperous economy."

The summit will involve "experts", unions, and business leaders - talking about productivity. Banning job replacement with AI will be one of many futile items on the agenda.

I have to say I am feeling nervous.

How Confident Are You?

At its core, economic activity is driven by confidence. When B2B firms collectively belt-tighten through pausing orders, deferring contracts and trimming payrolls, the cuts to suppliers ripple through production, employment and investment via the Keynesian multiplier effect (20). Even more potent is the confidence channel itself: as businesses anticipate weaker demand and proactively slash spending, they precipitate the very slowdown they fear, turning expectations into a self-fulfilling prophecy (21).

With NAB’s business-confidence index barely positive at +2 in May 2025 (5), managing sentiment is as vital as navigating fundamentals.

People writing articles like this certainly doesn't help confidence. But neither does burying your head in the sand. The question for owners and management is "what to do about it?" You can either wait for the slow-down to hit or prepare for it by trimming costs.

This was the core dilemma faced by the Investment Bank in "Margin Call." If the market collapsed and they were left holding the dud mortgages on their books - the bank would go under. However, if they dumped the mortgages on to the market they could avoid insolvency but would trigger a widespread market collapse.

JWPM Consulting