Australia’s resource wealth is the envy of the world—but history warns that a boom can turn to bust if we’re not careful. The economic phenomenon known as ‘Dutch Disease’ is back in the headlines for 2025, as commodity prices surge and the Australian dollar rides high. But what exactly is Dutch Disease, and why should everyday Aussies, investors, and policymakers care?
What is Dutch Disease? A 2025 Perspective
‘Dutch Disease’ refers to the negative side effects of a resource boom, named after the Netherlands’ gas discovery in the 1960s. When a country strikes it rich with commodities—think iron ore, gas, or lithium—money flows in, the local currency strengthens, and suddenly other sectors, like manufacturing and tourism, become less competitive globally. This can leave an economy overexposed and vulnerable if commodity prices fall.
In 2025, Australia faces a textbook scenario. Iron ore, critical minerals for batteries, and LNG exports are all in high demand, driven by global decarbonisation efforts. The Australian dollar has appreciated nearly 8% since late 2024, making local goods and services pricier for overseas buyers.
How Dutch Disease Shows Up in Australia
There are clear warning signs that Dutch Disease could be taking root:
- Rising Exchange Rate: In 2025, the AUD/USD exchange rate is hovering around 0.78, up from 0.72 a year ago, largely due to resource exports.
- Manufacturing Under Pressure: Australian manufacturing employment shrank by 1.5% in the first half of 2025, as export orders fell and overseas competition increased.
- Tourism Slowdown: A stronger dollar means it’s pricier for international visitors. ABS data shows a 6% drop in inbound tourism spend in Q1 2025 compared to Q1 2024.
- Household Sectors Lag: Non-mining business investment has stagnated, with many SMEs citing ‘currency headwinds’ as a barrier to exporting.
The Reserve Bank of Australia (RBA) has flagged these imbalances in its April 2025 Financial Stability Review, warning that over-reliance on mining could ‘amplify downside risks if global demand shifts or prices correct.’
Policy Responses: Can Australia Dodge the Curse?
Policymakers aren’t sitting idle. The May 2025 Federal Budget includes several measures aimed at buffering the economy from Dutch Disease effects:
- Future Made in Australia Fund: $15 billion allocated to support advanced manufacturing, clean tech, and value-added processing onshore.
- Skills Transition Packages: New training subsidies for workers shifting from mining to emerging industries, with a focus on renewable energy and tech.
- Tourism Export Grants: Expanded support for tourism operators targeting key Asian and European markets.
- R&D Incentives: Enhanced tax offsets for non-resource sector innovation, aiming to diversify export capabilities.
The RBA is also closely monitoring interest rates and capital flows, hoping to avoid an overheating currency. Meanwhile, state governments in WA and Queensland are investing in infrastructure to help local businesses compete globally, not just within mining.
What This Means for Investors and Everyday Aussies
For investors, Dutch Disease is a double-edged sword. Resource stocks have outperformed the ASX 200 so far in 2025, but the risks of a correction are real if global demand cools. Diversification is key: consider balancing exposure to mining with sectors like healthcare, tech, and agriculture, which may benefit as the economy rebalances.
For workers and families, the impact is mixed. Mining regions are booming, but city-based manufacturers and tourism operators may face tougher times. The government’s new training and transition initiatives could offer opportunities for those willing to upskill or change sectors.
And for anyone with overseas travel plans, the stronger dollar means your money goes further—one of the few silver linings for consumers!
The Road Ahead: Lessons from the Past, Eyes on the Future
Australia has weathered Dutch Disease threats before, but the stakes are higher in 2025 as the global economy pivots to net zero and new competitors emerge. The key lesson: resource booms are a blessing, but only if we use them to build a more resilient, diversified economy. Policymakers, business leaders, and investors must work together to ensure the next bust doesn’t catch us off guard.
