There are positive signs for Australian businesses in the economic landscape as we enter 2025 – alongside a handful of unknowns that will keep the market on its toes.
While business capital expenditure plans have softened recently, expect them to strengthen again in 2025, particularly in the second half as conditions improve.
Business confidence was not as weak through 2024 as what was seen with consumers. One of the reasons for that was strong population growth, which supported demand growth for business goods and services.
While population growth is slowing, it is still solid as we enter 2025 and capacity utilisation rates are above average. There's still quite a bit of demand out there.
Importantly, we've seen input cost growth slow and stabilise at lower rates. These are all positive signs.
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In addition, a recovery in household spending growth should support discretionary sectors, such as retail and hospitality.
The potential for an interest rate cut in Australia in 2025 is good news for the construction space (particularly when it comes to housing), as well as manufacturing.
The year 2025 looms as another exciting one for businesses, with persistent inflation and geopolitical change creating a landscape of uncertainty and opportunity in the Asia-Pacific region.
The increasing speed of digitisation, dawn of the real-time economy, and shifting supply chains will all also have a role to play in shaping the macroeconomic environment.
At ANZ Institutional, we know business are looking to position themselves to take advantage of these trends.
As part of our Outlook 2025 series, we’re asking our subject-matter experts to provide insights into a range of complex areas from across close to 30 markets – helping you better understand how you can prepare for the New Year. We’ll be sharing the responses over the coming weeks.
One of the big unknowns for 2025 is the potential for the incoming US administration to impose tariffs on international trade.
Australia runs a large goods-trade deficit with the US, so the country may not be much of a target compared to other economies. Even if it is, a lot of Australian exports can be quickly diverted to other trading partners.
The bigger risk for the Australian economy would be if tariffs trigger broader activity which disrupts supply chains and trading patterns, which could lead to higher prices for Australia's imported goods.
Another risk for 2025 is the ongoing slowdown in China. ANZ Research expects Chinese gross domestic product growth will slow to 4.3 per cent in 2025. That would be the lowest growth seen in that economy, outside of the pandemic period, since the early 1990s.
All else equal, that could put downward pressure on Australia's national income growth. But Australia could respond by shifting trading patterns or trying to improve productivity.
Catherine Birch is a Senior Economist at ANZ
