Australia’s economic outlook in 2025 remains cautiously optimistic. Inflation is easing, interest rates are beginning to fall, and households are starting to benefit from energy cost relief. A combination of real wage growth, a strong labour market, and continued government spending is helping to keep the economy steady.

Yet, despite these positive signals, early 2025 has been sluggish. Consumer confidence is fragile, with households pulling back on spending amid ongoing geopolitical tensions and global trade instability.

Impact of the Trump tariffs 

While the Trump tariffs have raised questions about trade impacts, the RBA has suggested that the effect on Australian GDP will likely be modest. The US is not one of Australia’s major trading partners, so the primary impact is expected to be on import prices rather than volumes.

Interestingly, this shift could prove beneficial to Australian consumers. With the US becoming less accessible as a destination market, excess supply from China and Southeast Asia may be redirected to Australia. For categories like electronics, furniture, and clothing, this could lead to lower prices and higher import volumes, offering relief for households – though possibly at the expense of local producers facing heightened competition.

Risks for resource exports

If tariffs on China persist, there is a risk of slower industrial production in the region. This could dampen demand for Australian natural resources, posing a threat to export earnings and potentially dragging on GDP growth.

Domestic outlook improving

On the home front, signs are more encouraging. Real wages are on the rise, and borrowing costs are forecast to decline. Markets are currently pricing in two additional rate cuts in 2025, one in August and another later in the year. This could bring the cash rate down to 3.35%, helping to improve household balance sheets.

As household budgets improve, discretionary spending is expected to lift modestly, supporting GDP growth into 2026, even if performance remains below the long-term trend.

This article references findings from our Q2 2025 Economic and Residential Market Report. Read the full report here.