Australia’s Economy Continues Declining. Is Low Tech Adoption to Blame?

Australia, once called the "economic poster child," has now been termed a "problem child” by McKinsey. The nation had witnessed 33 consecutive years of economic growth prior to the pandemic. Now, analysts are rejoicing when the GDP growth clocked in at 1.3% for Q4 2024, ahead of the consensus of 1.2%. Productivity growth has fallen to the 30^th rank out of 35 advanced economies while corporate investment persists at recession levels. It should come as no surprise, therefore, that living standards are also falling in Australia.

With zero growth in labour productivity since 2016, both consumers and businesses are grappling with rising costs and declining competitiveness. Real household disposable income has also remained flat since 2017, compared to the 15% growth reported by the US, given the productivity boom in America after the pandemic.

While multiple factors play a role in keeping Australia's economy depressed, weak business spending on new equipment and technology over the past 8 years is a major culprit. Spending on new technology has remained at the 1990s recession level, a key reason for the low productivity.

State of Technology Adoption in Australia

According to the Reserve Bank of Australia (RBA), “One factor contributing to slower productivity growth in Australia appears to be slower diffusion and adoption of technologies.” The central bank noted that while 40%-50% of businesses adopt or adapt existing technologies to improve their operations, only a "very small percentage" innovate with technologies or products in any given year.

This observation has been reaffirmed by the Tech Council of Australia, which recommended that not just large and mid-sized firms but also start-ups must increase investment in technology adoption to drive economic growth and prevent Australia from lagging behind the rest of the world. In fact, the Tech Council's report proposed that if technology investment was increased from 3.7% of the GDP to 4.6%, it could add A$39 billion in productivity gains by 2035. But the report also stated that tech R&D spending should be simultaneously increased to achieve this goal.

As of 2024, Australian businesses were investing $90 billion, or 2.2% of the GDP, in tech adoption. Although this figure represents a significant increase from the 2016-17 levels, the share of GDP remains unchanged. Technology adoption includes acquiring tech that is new to the specific business even if it isn’t new to the industry, nation, or rest of the world. This makes adoption different from R&D investment, which focuses on developing technology that does not yet exist.

The Tech Council’s report goes on to state even a 0.4% of GDP rise in spending on tech adoption would bring the total investment up to 2.6% of the GDP by 2035. Similarly, a 0.7% rise in R&D investment will take the spending to 4.6% of the GDP, well ahead of the current projection of 3.5%.

A small business survey, conducted by CPA Australia in March 2025, revealed that small and mid-sized businesses lag behind their APAC counterparts in technology adoption. In fact, Australia comes in at the second to last position, with just about 49% of small business sales occurring through the latest digital payment technologies, such as Apple Pay or PayPal, compared to 96% for Mainland China.

Australia also lags behind on cybersecurity, with only 39% of businesses proactively reviewing their cybersecurity efforts within the last 6 months. The global average stands at 50.8%.

The Way Forward

The lower productivity, declining standard of living and stagnating disposable income have impacted market sentiment. The benchmark index, S&P/ASX 200, or AU200, ended March down 4.36% YTD. The bearish sentiment towards the index is reflected in Acuity’s AssetIQ widget.

Market sentiment towards tech stocks hasn't been faring much better, with one of the largest tech stocks on the AU 200, WiseTech Global, down 34.43% YTD by March 31, 2025. The bearish sentiment on the stock is likely to continue, as reflected in Acuity’s AssetIQ widget.

A ray of hope is the RBA's expectation that the Australian economy will witness a gradual recovery from 2025. GDP growth is expected to pick up, while inflation is likely to recede, and private demand is projected to grow. The RBA projects GDP growth of 2.4% for 2025 and 2.3% for 2026. Will this be soon reflected in the stock market’s performance? We’ll have to wait and watch.