Market Analysis: Surge in Government Spending Will Limit the RBA's Room for Rate Cuts

ChainCatcher message, Royal Bank of Canada Chief Economist Su-Lin Ong stated that strong public demand has been a characteristic of the Australian economy for many years, with public demand currently accounting for about 28% of GDP, up from 19% a decade ago.

She added that this spending has driven significant growth in government sector employment while also intensifying wage pressures. She mentioned that starting from May 2025, the Reserve Bank of Australia will eventually begin to cut interest rates, and these domestic fundamentals suggest a more moderate easing cycle of 50 basis points. She further noted that changes in the labor market next year will largely determine this. Currently, she expects a total rate cut of 75 basis points.