Q4 2025 National Accounts Update

An update to my December 2025 Economic Outlook

The Headline: GDP Growing above Inflationary Speed Limit

GDP growth has lifted from the anaemic sub-1.5% rates seen through much of 2024. But 2.56% annual growth is not a recovery – it is the economy running above its compressed speed limit of roughly 2%.

The December outlook argued that near-2% growth reflects supply constraints rather than demand deficiency. The Q4 data confirms this: growth has accelerated and domestic inflation remains elevated. That combination only occurs when an economy is at/above capacity. There is no spare room here.

Follow the Science: Science, Uncertainty and Values in the Pandemic

This essay is a companion to Is Macroeconomics a Science? which examines the epistemological status of macroeconomics as a social science – its reliance on provisional models, its forecasting limitations, its embedding of value judgements within technical frameworks, and the tension between orthodoxy and productive dissent. The pandemic exposed remarkably similar dynamics in public health: provisional models communicated as certainty, values disguised as science, dissent suppressed rather than engaged, and institutional authority overextended beyond what the evidence could support. The parallels are not coincidental. They reflect a structural problem in the relationship between expertise and democratic governance that applies wherever technical knowledge is used to justify political choices.

How Interest Rate Targeting Works

In my previous post on monetary policy transmission asymmetries, I leaned too heavily on the mortgage repayment channel – the "cash-flow" story – when explaining why rate hikes transmit fast. Peter Tulip rightly called this out: the consumption research suggests the cash-flow channel is less important in aggregate than the public discussion implies.

He's right. And it's worth a more detailed treatment, because understanding which channels actually matter – and how much – is essential background for evaluating the alternative instruments people periodically propose for managing inflation.

Monetary Policy: Asymmetries, Lags, and the Case for Purposefulness

Introduction

The textbook story of monetary policy is deceptively simple: raise rates to cool inflation, cut rates to stimulate demand. In practice, the transmission mechanism is neither symmetric nor uniform. Different channels operate at different speeds, rate hikes bite harder and faster than rate cuts heal, and the labour market – the variable central bankers care most about – is the slowest to respond. Understanding this structure explains both why central banks should be deliberate in their actions, and why a rapidly falling unemployment rate during above-band inflation is one of the most worrying signals in macroeconomics.

Where Is the NAIRU? And What Does It Mean for the RBA?

Introduction

The NAIRU – the non-accelerating inflation rate of unemployment – is back at the centre of the Australian monetary policy debate. With the RBA hiking in February and the next meeting in mid-March, the question isn't really about the direction of policy anymore. It's about pace. Should the RBA hike again in March, or wait for the Q1 quarterly data and (depending on that data) act in May?

The answer depends almost entirely on where you think the NAIRU sits.

Is Macroeconomics a Science?

TL;DR

• Macroeconomics is a science - but a fragile, conditional one. It is a social science, not a natural science like physics or chemistry.
• The right test isn't Popper's falsifiability but Lakatos's question: is the dominant research programme generating new, empirically confirmed insights - or just patching failures?
• We should trust macroeconomists on mechanisms and trade-offs, be sceptical of precise forecasts, and be honest about where technical analysis ends and political judgement begins.

Australia's Productivity Problem: A Lost Decade and Why AI Won't Save Us

Australia has a productivity problem. You've heard this before. But the usual story - a gradual slowdown, structural shifts toward services, Baumol's disease - misses what's actually happened.

The real story is starker: Australia had exactly one period of meaningful productivity growth in the last 45 years. It lasted about twelve years. Before and after: stagnation. And since 2015, even the strategies that previously masked this problem have stopped working.