Sector Pulse: Insights into Australia’s Growth Engines

Australia’s economic health is built upon a diverse and resilient mix of businesses and industry sectors, each playing a crucial role in supporting national growth, employment, and stability. As of 1Q25, the nation’s economy continues to demonstrate moderate but sustained growth, with gross domestic product (GDP) rising by 0.2% qoq and by 1.3% over the past year. This expansion has occurred despite global uncertainties and domestic challenges, such as extreme weather events affecting mining, tourism, and logistics.

Australia's economic resilience stems from its sectoral diversity, though challenges remain in achieving optimal economic complexity. The nation currently ranks 105th on the Economic Complexity Index, indicating limited diversification compared to its peers. Despite this challenge, Australia's economy has demonstrated remarkable stability, experiencing 30 years of uninterrupted growth prior to the COVID-19 pandemic. This resilience results from the interaction between different sectors, where mining revenues support government services, small businesses drive local economic activity, and service industries provide employment stability.

The mining sector remains a cornerstone of Australia’s economy, contributing over 12% of total output and accounting for nearly 59% of export earnings. However, Australia’s economic strength is not solely reliant on resources. Sectors such as finance, health care, education, manufacturing, and construction collectively account for a significant share of GDP and are essential for domestic economic activity. The services sector, broadly defined, is the largest contributor to both GDP and employment, reflecting the nation’s shift towards a knowledge- and service-based economy.

Employment data highlights the critical importance of sectoral diversity. Health care and social assistance is Australia’s largest employer, representing over 15% of the workforce. Retail trade, construction, professional services, and education also provide millions of jobs, underpinning household incomes and community wellbeing. While mining dominates exports, it employs just over 2% of the workforce, underscoring the importance of a balanced and varied economic base.

Australia’s population reached 27.3 million in 2025, with continued growth supporting demand across all sectors. The employment-to-population ratio remains robust at 64.4%, indicating strong labour market participation. Business investment has been particularly strong in agriculture, transport, and energy infrastructure, driving innovation and supporting regional development. State economies continue to specialise, with mining concentrated in Western Australia and Queensland, and services and finance thriving in New South Wales and Victoria.

The resilience of the Australian economy is further supported by prudent financial management, as evidenced by a household saving-to-income ratio of 5.2%. This, alongside ongoing business investment and sectoral diversity, ensures that Australia is well-positioned in an uncertain world.

Regional development plays a crucial role in distributing economic benefits across Australia's diverse geography. State-level output shows New South Wales contributing 30.7% of national output, Victoria 22.7%, Queensland 19.1%, and Western Australia 17.1%. This geographic distribution reflects how different regions specialize in particular sectors.

Capital expenditure patterns revealed selective growth. Investment in machinery and equipment rose by 2.1%, largely concentrated in renewables, logistics, and food processing. However, software and digital systems investment declined, indicating tightening of discretionary tech budgets. Implementation timelines for large-scale investments remained delayed due to skills shortages and financing constraints.

Profitability outcomes varied. Gross operating surplus across all industries rose 1.1% over the quarter. Gains were strongest in construction (+5.6%) and ICT (+4.1%), while mining profits fell 3.9%. These dynamics reflect shifting cost structures, commodity prices, and domestic demand conditions.

The health of Australia's economy depends on the interplay between large corporations, small businesses, and diverse sectoral contributions. From the export earnings of mining companies to the employment provided by small businesses, from the innovation of technology firms to the essential services provided by healthcare and education sectors, each component plays a vital role in maintaining economic stability and growth. This sectoral diversity provides Australia with the resilience to face global economic uncertainties while positioning the nation for continued stability.

Australian agriculture remained resilient in 2023–24, navigating variable weather and global commodity price shifts with strong output performance. The sector grew by 4.3% in Q1 2025—its strongest quarterly result since 2021—supported by firm export demand for grains and livestock, particularly from China, Japan, and the US. This rebound was aided by easing inflation, which helped reduce fuel and fertiliser costs, and by the RBA’s rate cut to 3.85%, easing financing burdens and encouraging investment in technology and infrastructure.

Labour shortages, a longstanding constraint, have begun to ease as population growth from immigration fills some skill gaps, though seasonal work remains hard to staff. Business sentiment is improving, mirroring the broader economy, with many agribusinesses expecting better financial conditions ahead. While the sector’s outlook is still weather-dependent and exposed to global volatility, its diversity across crops and livestock, strong export relationships, and focus on sustainability are long-term strengths.

Farmers are increasingly investing in climate resilience, digital tools, and water management to future-proof operations. Continued government support in R&D, trade access, and agtech innovation is helping the industry manage the twin pressures of climate change and global market uncertainty. 

Case Study: Automated Dairy Innovation

Facing costly refurbishment of their ageing dairy, the client opted instead to invest over $6 million in a state-of-the-art automated facility—nearly double their annual milk revenue. The decision, informed by research and site visits, was driven by the promise of higher milk yields, better cow welfare, and reduced reliance on labour. Unlike the old system, where cows were manually milked twice a day, the new robotic setup allows cows to self-milk on average 2.7 times daily, lifting productivity and freeing staff for more meaningful tasks. It also creates a safer work environment by limiting human-animal interaction.

Beyond efficiency, the upgrade brings clear ESG gains. Water is recycled, waste is repurposed as fertiliser, and even cow comfort is prioritised—with automated back scratchers now part of the milking routine. The client is also exploring solar power to cut costs and emissions, reinforcing their sustainability goals.

Mining remained a pillar of Australia’s economy in 2023–24, driven by global demand for traditional and critical minerals. Despite headwinds from global oversupply and softer demand—reflected in a 2.0% contraction in Q1, the sector’s third consecutive decline—iron ore exports to China remained a bright spot. Falls in thermal coal and LNG prices squeezed margins, as did rising energy costs and royalties. Yet, capital investment remained strong, particularly in lithium and rare earths, positioning the sector for future-facing growth.

Western Australia attracted $32 billion in mining investment in FY24, underscoring the sector’s economic importance. The RBA’s rate cut has eased financing for large projects, while lower inflation has moderated cost pressures. Employment remains stable, though the forecast uptick in unemployment to 4.2% could expand the talent pool. Confidence is underpinned by long-term demand for minerals essential to the global energy transition, such as lithium and copper, despite recent price volatility.

Gold prices remain high, fuelling M&A activity, while domestic policy uncertainty—particularly around gas reservation and energy security—remains a risk. Mining continues to underpin regional economies, export earnings, and GDP, but must now balance its traditional strengths with the emerging imperative to lead in clean energy supply chains.

Australia’s manufacturing sector stabilised in 2023–24 after a period of volatility, supported by easing input cost inflation and interest rate relief. These factors have encouraged investment in automation and advanced manufacturing. However, subdued domestic demand (0.7% y/y) and high energy costs continue to weigh on production, with Q1 activity contracting by 0.7%, led by declines in machinery, equipment, and chemicals.

Labour availability is improving slightly, with some workers seeking extra hours amid ongoing cost-of-living pressures. This has helped ease skill shortages. Business sentiment is lifting, but remains cautious, particularly among SMEs facing financing and regulatory hurdles. Metals manufacturing provided some stability, but the sector continues to struggle with weak productivity and elevated unit labour costs.

Nonetheless, transformation is underway. The government’s Future Made in Australia initiative is fuelling momentum in renewables, clean tech, and high-value manufacturing. Supply chain disruptions during COVID-19 have renewed interest in local production, particularly in food processing and defence-adjacent industries. While optimism is emerging, the sector must navigate high energy prices, complex regulation, and a shifting workforce to remain globally competitive.
 

Healthcare continued to expand in 2023–24, solidifying its position as Australia’s largest and fastest-growing industry. Public investment was significant—$137.6 billion across health, aged care, and support services—including $6.1 billion to strengthen Medicare and $3.5 billion to triple bulk billing incentives. Over $280 million was saved through PBS reforms and the introduction of 60-day prescriptions, directly improving access and affordability for more than 11 million Australians.

Workforce shortages are easing slightly due to migration and sector reforms, while strong wage growth—supported by a tight labour market—has helped retention. Easing inflation and the RBA’s rate cut have moderated operational costs. The sector remains well-supported by GDP growth (1.5% in 2023–24), enabling continued investment in infrastructure and services.

However, structural challenges persist. Private healthcare providers face flat earnings, rising operational costs, and declining private insurance uptake as consumers tighten budgets. Regulatory complexity and workforce strain continue to challenge sustainability, as highlighted by the recent administration of Healthscope.

In aged care—now a $50 billion industry—growth is uneven. Residential care providers are grappling with cost pressures and staffing gaps, while home care services benefit from flexible models and strong demand. Sector reforms aim to enhance quality and financial viability, but delivery hinges on investment in workforce capacity, technology, and streamlined regulation. The sector’s long-term outlook remains positive, but navigating these structural headwinds will be critical to meeting rising demand.

Australia’s professional services sector posted solid growth in 2023–24, driven by resilient demand from both corporate and government clients. The sector continues to adapt well to hybrid work and digital transformation, with technology enhancing the delivery of high-value services. Easing inflation in services has moderated wage pressures, and the RBA’s recent rate cut has supported business expansion and investment. As GDP growth gradually lifts and confidence strengthens, the sector is well-positioned to capture opportunities across legal, advisory, and consulting domains.

The labour market remains highly competitive, though increased immigration has helped ease acute talent shortages. Business sentiment is optimistic, with many firms expanding headcount and investing in digital capabilities. Professional services are playing a central role in Australia’s transition to a knowledge-based economy, contributing meaningfully to GDP and broader economic resilience.

Meanwhile, the technology sector maintained its upward momentum in 2023–24, underpinned by strong investment in digital infrastructure and innovation. Easing macroeconomic conditions, including lower inflation and interest rates, have boosted venture capital and corporate spending. Technology firms are at the forefront of driving productivity, accelerating digital adoption, and enabling transformation across industries.

Labour demand in tech remains high, particularly for software engineers, data scientists, and cybersecurity experts. Immigration is helping bridge skills gaps, though competition remains intense. Business sentiment is buoyant, with firms confident in their growth outlook and Australia's digital trajectory. In Q1 2025, the sector posted mixed results: information media and telecommunications rose 2.1% due to 5G rollouts and continued digital transformation, while professional services grew 0.8% on strong infrastructure advisory demand. However, traditional IT services declined—computer system design revenue fell 6.6%—as rapid AI adoption disrupted hiring and reshaped project pipelines.

Although rising input and labour costs are compressing margins, firms are increasingly investing in automation, AI, and digital tools to enhance efficiency. The sector continues to grapple with challenges in talent retention, data privacy, and cybersecurity, but its innovation-led growth is set to play an even greater role in Australia’s economic diversification.

The government sector remained a stabilising force in 2023–24, with public demand contributing 0.5% to quarterly GDP growth in Q4 2024 despite a marked slowdown in Q1 2025. Increased spending on health, education, and infrastructure has so far helped offset weakness in private consumption, supporting economic resilience. Easing inflation and the RBA’s rate cut have provided fiscal space for further targeted investments while lowering the cost of servicing debt.

Employment in government services has remained strong, offering job stability and competitive wages amid a normalising labour market. Business sentiment towards government policy is broadly positive, underpinned by confidence in the sector’s capacity to manage economic transitions and cost-of-living pressures.

As Australia rebalances post-pandemic, government leadership in skills development, digital infrastructure, and social investment will be pivotal. These initiatives not only support long-term economic growth but also foster social cohesion by targeting vulnerable communities and building future resilience.

Australia’s construction sector faced a complex environment in 2023–24, marked by high costs, labour shortages, and fluctuating demand. However, inflation in housing has moderated, and the RBA’s rate cut has improved financing conditions and begun to stimulate activity. Public infrastructure investment has cushioned the sector against softer private demand, keeping employment and output relatively steady.

While population growth has eased some labour shortages, competition for skilled trades remains elevated. Business sentiment is cautiously optimistic, supported by expectations of improved affordability and a gradual lift in economic activity. In Q1 2025, construction output held steady at $74.4 billion: building work rose 0.9%, while engineering construction slipped 1.0%. Wage growth remains a challenge, rising 3.4%—well above the national average—alongside elevated compliance and materials costs.

Residential construction remains subdued due to high unit labour costs and cost pressures. Building approvals fell 5.7% in April 2025 to 14,633 units, driven by a sharp decline in multi-unit approvals, while house approvals rose 3.1%. The value of residential approvals slipped 1.3%, whereas non-residential approvals surged 14.7%, showing resilience in commercial and infrastructure projects.

On a more positive note, dwelling commencements seem to be on the rise, led by new private houses. However, completions remain well below targets set under the National Housing Accord, with the sector on track to fall short of building 1.2 million homes over five years. This mismatch between approvals, commencements, and completions is keeping upward pressure on housing prices and rents, particularly in high-demand urban areas. While lower interest rates may support recovery, structural challenges—cost inflation, labour shortages, and financing constraints—are likely to keep the sector constrained in the near term.

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