Australia’s War Economy: What Conflict Means for Your Finances in 2025

Australia’s economic resilience is tested in times of global conflict. But what exactly happens to our finances when the nation pivots to a ‘war economy’? As geopolitical tensions simmer and defence spending hits new highs, 2025 is a pivotal year for understanding how conflict-driven policy shifts ripple through the Australian financial landscape.

The War Economy Explained: More Than Just Defence Spending

When economists refer to a “war economy,” they’re describing a period where government policy, industry, and national resources are redirected towards supporting military objectives. For Australia, this isn’t just about buying more submarines or increasing troop numbers. It’s a total economic shift with wide-reaching consequences.

• Defence spending surge: The Albanese government’s 2025 budget allocates over $60 billion for defence, up 8% from 2024, with major investments in AUKUS submarine programs and advanced missile systems.
• Industrial transformation: Local manufacturing is expanding rapidly, with new contracts for shipbuilding in Adelaide and drone technology in Queensland.
• Supply chain security: Strategic stockpiling of fuel, medical supplies, and critical minerals is now a core policy priority, with incentives for domestic producers.

This realignment affects not just big defence contractors but also small businesses, the labour market, and even the everyday consumer.

How War-Time Policies Impact Australian Households

History shows that wartime economies bring rapid policy changes—and 2025 is no exception. Here’s what Australians are facing right now:

• Inflation risks: Increased government spending can drive up prices for everyday goods. The RBA’s 2025 forecast suggests inflation could hit 4.1% if global conflict escalates, pushing up costs for petrol, groceries, and utilities.
• Interest rates in flux: To counter inflation and maintain funding for defence, the RBA is signalling a cautious approach, with the cash rate holding at 4.35% but future hikes not ruled out if fiscal pressures mount.
• Taxation and welfare shifts: The 2025 budget includes a modest levy on high-income earners to support defence outlays, while welfare recipients see cost-of-living supplements to help offset inflation.

For households, the pinch is real. Mortgage repayments remain high, rents are rising in key defence industry hubs, and everyday expenses are creeping upwards. On the flip side, workers in defence, logistics, and manufacturing are seeing new job opportunities and wage growth not seen in other sectors.

Investing and Saving in a War Economy: Smart Moves for 2025

How can Australians protect—and even grow—their wealth in a period of heightened geopolitical risk and economic uncertainty?

• Consider defence-linked investments: ASX-listed companies in defence, cybersecurity, and critical minerals have outperformed the broader market in the first half of 2025. ETFs tracking global defence stocks are also seeing strong inflows.
• Diversify against inflation: With inflation risks heightened, assets like inflation-linked bonds, gold, and certain real estate segments (especially in regional defence hubs) offer defensive value.
• Emergency savings matter more: Households are being urged to increase their cash reserves, as supply chain shocks and price volatility can hit family budgets unexpectedly.
• Watch for policy signals: Keep an eye on government and RBA statements—major fiscal or monetary policy shifts can affect everything from superannuation performance to the cost of personal loans.

Real-world example: In 2025, the South Australian economy is booming thanks to naval shipbuilding contracts, with local unemployment dropping to 2.8%. Meanwhile, households in regions dependent on global imports are facing higher prices and supply disruptions, making budgeting and local sourcing more important than ever.

The Big Picture: Preparing for a Resilient Financial Future

Australia’s war economy is more than a headline—it’s a complex, evolving challenge that touches every corner of our financial lives. Whether you’re navigating rising living costs, adjusting your investment strategy, or considering new career opportunities in defence industries, staying informed and agile is essential.

2025 is shaping up to be a defining year for how Australians adapt to global uncertainty. The decisions made today—by government, businesses, and households—will shape our prosperity for years to come.