The US economy is firing on all cylinders compared to Australia’s, even as Donald Trump’s approval rating sinks to new lows.
The American economy grew at an annual rate of 4.4 per cent in the third quarter of 2025, according to the US Bureau of Economic Analysis.
That robust expansion in GDP growth — more than double Australia’s growth rate of 2.1 per cent — marked the fastest pace in two years, driven by strong consumer spending and a significant rebound in exports.
There was more good economic news last week when the US Labour Department revealed that annual inflation was down to 2.4 per cent.
“Year one of Trump has been incredible … 4.4 per cent GDP at end of year, 2.4 per cent inflation, record high stock market … It’s honestly extraordinary,” American writer Clay Travis tweeted.
In contrast, Australia’s inflation rate is much higher as the nation faces a “long fight” to bring it under control and mortgage holders brace for another rate hike.
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Australia’s Consumer Price Index rose 3.8 per cent over the 12 months to December 2025, up from 3.4 per cent in November and well above the Reserve Bank of Australia’s (RBA) 2–3 per cent target range.
Last week the RBA responded by hiking the cash rate to 3.85 per cent, making Australia an outlier among its peers in reversing a downward cycle on interest rates.
The US – along with Canada, New Zealand and much of Western Europe – is still in an easing cycle, and Friday’s inflation data bolstered the case for the Federal Reserve to make further interest rate cuts this year — a total of three more cuts are expected.
There will be no such joy for Aussie mortgage holders, with most of the big four banks tipping a further rate hike to 4.1 per cent in May. As rates go up and inflation drags on, the data paints a grim picture and puts pressure on Treasurer Jim Chalmers ahead of the May budget.
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The American economy is also far more productive than Australia’s, which experts say is the key to understanding why it’s doing so much better.
US labour productivity grew 1.9 per cent in the year to Q3 2025, more than double Australia’s 0.8 per cent increase in the same period.
The stagnant Aussie figure has been attributed to a range of causes, including a boom in non-market sector jobs, which have lower measured productivity than private sector roles.
“Australia is lagging the US because we have very poor productivity growth, whereas the US is experiencing very strong productivity growth, driven in part by its AI revolution,” Macrobusiness Chief Economist Leith van Onselen told news.com.au.
Without strong productivity growth, Mr van Onselen said, Australia’s economy would continue to push up against capacity constraints, reducing per capita GDP growth and increasing inflation and interest rates.
America, meanwhile, was able to grow more strongly without triggering inflation because it was more productive.
The US unemployment rate is 4.3 per cent, while Australia’s is 4.1 per cent — one of few metrics where we beat the Americans.
But Mr van Onselen said Australia’s lower rate masked a structural problem, because recent job growth had been “government-funded in the non-market sector, most notably via the expansion of the NDIS”.
AMP Chief Economist Shane Oliver agreed that the difference between the two countries came down to productivity.
“Australia’s poor productivity growth means we can’t grow wages or living standards as fast as the US without causing higher inflation at the same time,” Mr Oliver said.
The US was more productive due to its higher exposure to AI and related investments, but it was also a “more dynamic and less regulated economy with lower government spending”.
“The key for Australia to address our lagging performance is to introduce more productivity-enhancing reforms to help us work smarter — like deregulation, tax reform and less government spending.”
Former RBA economist Martin Eftimoski said: “We have dropped the ball on productivity in this country in a big way, and it’s why the RBA has to put the handbrake on even though the private sector has only come back a little bit.
“You can think of our productivity as our speed limit, it’s just slower than the US, we can’t grow as fast as them.”
But there were many aspects of the US economy that Australia wouldn’t want, Mr Eftimoski cautioned, including a growing disparity between rich and poor, AI data centre spending propping up GDP growth and massive federal debt.
“If you stripped out AI data centre spending from US GDP growth, the picture would not look as rosy at all, and would look much closer to Australia in headline numbers. Consumer confidence in the US is very weak.”
Mr Chalmers has flagged that the May budget will focus on productivity and tax reform.
Trump’s approval reaches a new low
In other welcome news for the Trump administration last week, the American jobs market delivered surprising growth in January 2026.
Employers added a greater-than-expected 130,000 jobs, the US Labor Department said, helping to nudge the unemployment rate lower to 4.3 per cent.
It comes after a poor showing for the US jobs market in 2025: the weakest year for new jobs since the pandemic.
Strong jobs and inflation numbers would usually bode well for the party in power in a midterm election year, but Trump is languishing in the polls, with many voters unhappy with immigration raids across the country.
That’s despite conservative commentators pointing to his economic record as they try to hype the president before the midterms in November.
An AP-NORC poll last week found Trump had an approval rating of just 36 per cent, down 4 per cent from January.
Most respondents — 62 per cent — said his deployment of federal immigration agents into US cities had gone too far.
The approval rating marks the lowest figure Trump has received during his current term.
It dipped even lower during his first term in 2017, however, reaching 33 per cent according to a Reuters/Ipsos poll at the time.
The midterms, held at the midpoint of a president’s four-year term of office, are important because they determine control of Congress and will influence the president’s ability to advance his agenda.
Many Republican candidates are closely tied to Trump and his MAGA messaging, meaning voter sentiment toward him could affect their chances at the polls.
Below is a by-the-numbers comparison of the Australian and American economies.
Australia
Annual GDP growth: 2.1%
Annual inflation: 3.8%
Easing or raising rates: Raising
Annual productivity growth: 0.8%
Unemployment rate: 4.1%
United States
Annual GDP growth: 4.4%
Annual inflation: 2.4%
Easing or raising rates: Easing
Annual productivity growth: 1.9%
Unemployment rate: 4.3%