Deloitte Access Economics Employment Forecasts

19 February 2025: Moderating inflation and weakness in the economy opened the door for the Reserve Bank to cut interest rates this week, providing much needed relief to Australian households and businesses. The rate cut will also add some additional momentum to an already tight labour market.

Releasing the February 2025 edition of the Deloitte Access Economics Employment Forecasts report, Deloitte Access Economics partner and lead author, David Rumbens, said: “Last year saw the labour market continue to hum even as other economic indicators suggested recession-like conditions. Over 444,000 Australians gained jobs in the year to December 2024 with around two-thirds of these being full-time positions, highlighting the labour market's resilience.

“While the unemployment rate has risen to 4.0%, it remains well below the historical average. The underemployment rate has been trending downward since the end of 2023, particularly among early career workers, indicating minimal spare capacity in the labour market.

“Beyond the labour market Australia’s economy appears to have passed its low point, and 2025 is expected to see an acceleration in economic growth. Even if that only involves shifting from first to second gear, the economy will benefit from higher incomes, sustained public sector demand, and interest rate cuts.

“The labour market will benefit from this momentum, though businesses may be cautious about increasing hiring, opting instead to better utilise existing workers.

“The market sector workforce experienced modest employment growth in 2024 with most job growth very much sponsored by the public sector. Over the year to September 2024, the ABS Labour Account data showed some 85% of job gains are estimated to have come from the non-market sector.”

Productivity Puzzle

In 2024 Australia’s labour market challenges were far more about the productivity of labour, rather than creating the jobs themselves. Rumbens added: “Australia’s growth in economic output did not keep pace with jobs growth, which has seen a stark divergence in labour productivity growth in Australia.

“Australian labour productivity has fallen considerably over the past three years. Since March 2022, Australia’s labour productivity has fallen by 5.7%, which comprises a 3.1% fall in market sector productivity, and a 9.0% reduction in non-market labour productivity. Labour productivity in the non-market sector now sits at a near 20-year low.

“Labour productivity is a key determinant of economic growth and overall living standards. Three years of near consistent declines has become a key concern. Australia needs a productivity boost – from the market sector via investment, particularly in technology, and from the non-market sector via economic reforms.

“The solution to this productivity dilemma could be at hand. The year ahead is likely to see far greater use of GenAI in workplaces, potentially providing a significant productivity boost. The latest Deloitte CFO Sentiment survey finds that nearly half of CFOs believe GenAI is substantially transforming their industry or will do so within the next two years”

What’s in store for Australia’s labour market in calendar year 2025?

Overall, national employment growth is forecast to slow to 1.8% (257,400 workers) in 2025, moderating further to 1.2% (180,000 workers) in 2026, as public spending slows, net overseas migration trends downward, and macroeconomic conditions are still relatively subdued.

“All sectors are expected to benefit from the gradual economic upturn, with consumer-facing industries poised for growth due to the combined effects of tax cuts, government rebates, and anticipated cuts to interest rates,” Rumbens said.

How does that play out by broad worker classification?

• The focus on non-market employment plays well for the human services workforce which is expected to notch up another year of solid growth, supported by health care, education, and public admin, along with a rebound in accommodation and food services employment as consumer spending picks up. The human services workforce is expected to grow by 2.4% (124,700 workers) in 2025 and 1.3% (69,600 workers) in 2026.
• Employment growth for white collar workers is expected to be 2.3% (119,900 workers) in the year ahead, supported by gains across white collar roles in the non-market sector, professional services, and office-based construction jobs.
• Growth in the blue collar workforce is expected to soften to 0.3% (12,800 workers) in 2025 and 0.4% (14,400 workers) in 2026. Despite an increased focus on residential construction, capacity constraints are expected to limit the potential rate of construction upswing, alongside broader weakness in manufacturing, and wholesale trade.

Employment Forecasts is released quarterly and provides forecasts and commentary for each industry and occupation, plus white collar, blue collar and human services employment. There are three levels of data available: state, city and CBD. Employment Forecasts is particularly useful in the analysis of property market demand.