Statement on Monetary Policy – November 2025Box A: Insights from Liaison

Recent liaison discussions indicate that business conditions have gradually improved over the past year. Many firms have continued to report a slight pick-up in demand over recent months, though growth remains modest (Graph A.1). Non-labour cost growth has been little changed in recent months, with expectations for a gradual easing over the year ahead. Wages growth slowed noticeably over the past year but is expected to ease only gradually over coming months. Selling price inflation has remained above average for some time and is expected to remain around its current pace over the year ahead. Most firms plan to maintain a stable level of investment and headcount over the year ahead, with a focus on enhancing cost efficiencies, productivity and margins. Contacts referenced uncertainty less than they did earlier in the year, with most continuing to report little impact from changes in international trade policies.

Consumer spending has picked up a little, but shoppers remain value focused.

Firms report that, while consumers remain cautious and value conscious, growth in consumer spending has been a little stronger than earlier this year. Most retailers are now more optimistic about the outlook and have noted that consumer sentiment is slowly improving. That said, this has yet to translate into a material pick-up in sales outside of promotional periods. Retailers generally expect a gradual uplift in spending over coming months. Tourism and hospitality contacts report that household spending remains selective and closely linked to major events.

Demand for community services remains at a high level, with housing highlighted as a key concern for many people seeking assistance. The demand for social assistance services continues to exceed the supply capacity for most organisations. This demand extends across a broad range of areas including homelessness, emergency financial and food support, and domestic violence.

Growth in domestic student commencements in 2025 has been mixed across tertiary education providers, while commencing international student numbers are lower than a year ago. Strong competition for students and cost-of-living pressures have weighed on domestic student commencements at some institutions. International student commencements and applications are lower than a year ago due to changes in government policies and affordability constraints. Domestic student commencements are expected to increase modestly in 2026, while expectations for new international enrolments are more mixed.

Firms expect the level of business investment to be broadly stable.

Most firms plan to maintain current spending levels over the next 12 months, though the share of firms intending to increase investment has edged up slightly. Higher investment intentions are largely concentrated in upgrades to non-residential buildings (e.g. hospitals, retail stores) and digital transformation projects (i.e. IT systems, data storage, AI). A few firms continue to report elevated construction costs as one factor weighing on investment. Information from liaison also suggests that renewable energy projects are expected to increase, but delays remain a key challenge.

Contacts note that public infrastructure spending is likely to decline over the year ahead as several large transport projects reach completion. Declines in transport spending are judged unlikely to be offset by other infrastructure spending (e.g. hospitals, defence, water, utilities), although this varies across states. Infrastructure expenditure is expected to remain strong in Queensland, supported by projects for the 2032 Olympics, while New South Wales and Victoria are likely to see lower volumes of public construction.

Residential building conditions have improved slightly since January.

New detached homes sales have continued to trend higher over recent months and liaison contacts expect new home sales to rise over the year ahead. Contacts note that new home sales have been supported by recent interest rate reductions, higher established home prices and the announcement of the Australian Government’s 5% Deposit Scheme. New home demand remains robust in Western Australia and Queensland, while demand in New South Wales and Victoria has trended up since January. However, homebuilders report that sales in New South Wales and Victoria have risen by less than expected over recent months due to affordability constraints.

Firms report solid levels of construction for premium apartments, as these projects remain feasible due to high selling prices. By contrast, contacts continue to report subdued levels of construction for non-premium apartments as construction costs remain too high relative to selling prices. Nonetheless, contacts have generally become more optimistic about the outlook for high-density construction, with recent rezoning and planning reforms in some states expected to materially support supply of new dwellings.

Overall employment levels are growing, but still at a below-average pace.

The share of firms reporting headcount reductions has increased slightly, but overall employment outcomes are little changed. Firms that had reduced headcount indicated this was driven by a push to cut costs and find efficiencies, as well as lower-than-expected demand and revenue. Employment intentions in aggregate remain little changed for the year ahead and are still below their long-run average.

Labour availability continues to improve, though around half of the contacts who discussed labour availability indicated that the labour market is still tight (Graph A.2). Almost all firms describe labour market conditions as improving or stable compared with a year ago, though challenges persist for some contacts in sourcing candidates with the desired skills, particularly in regional areas.

Non-labour cost growth remains broadly based and little changed, while wages growth has slowed; both are expected to ease gradually over the year ahead.

Around half of contacts have continued to report above-average cost growth and very few firms have reported stable or declining costs compared with the past. Firms continue to maintain tight control over their cost base, reflecting the extended period of above-average growth in unit costs. Businesses continue to report software and IT subscription services as an area of strong cost growth. Some retailers expect to benefit from the earlier appreciation of the Australian dollar via lower imported costs of goods, though the extent to which these savings are passed through to lower prices will vary across firms.

Wages growth declined noticeably over the past few months, aligning with firms’ earlier expectations. Firms anticipate that wages growth will ease more gradually over the coming year given the labour market remains somewhat tight.

Growth in firms’ selling prices for goods and services remains above the long-term average. Firms’ selling price growth has shown little change over the past year and is expected to continue at around its current pace over the year ahead. Many firms are actively seeking to maintain or recover margins through cost efficiencies, productivity improvements and a focus on more profitable activities.