Economic Update and Outlook for the 2025 Financial Year – How will it impact you & your business?

Inflation & Interest Rates

The headline inflation rate for the year ended 30 June 2024 was 3.8%, which was below market expectations. This is good news. Business owners, investors and households with debt were not hit with another interest rate increase, with the RBA leaving rates on hold on 6^th August, and indicating they are likely to stay on hold for the rest of the year.

Economists are generally forecasting that rates are likely to be cut sometime within the next 12 months. ANZ are predicting that interest rates will be cut in February 2025, and the cash rate will fall from 4.35% to 3.60% over the course of 2025.

Property Market

Assuming that interest rates do fall next year, this will boost consumer and investor confidence. It should become easier to borrow money, as the threshold to demonstrate serviceability will be lower. With more borrowing power and lower interest rates, the competition between investors and home buyers to get their hands on Australia’s limited housing stock will only intensify. Coupled with continued population growth, this increase in demand could lead to higher property prices.

Unemployment & Labour Market

Australia’s unemployment rate has risen from 3.5% in June 2023, to 4% in June 2024. It is expected to continue to increase towards 4.5% in 2025. This softening of the labour market should make it easier for businesses to attract and retain staff.

This will be a welcome relief for businesses, who have been facing record high labour costs, along with higher input costs and finance costs. At the same time, labour productivity has fallen, further contributing to the tough conditions Australian businesses have been facing.

AI & Productivity

The adoption of artificial intelligence and machine learning to improve productivity will be a necessity for businesses to remain competitive and take advantage of the improved trading conditions expected for 2025. Continually monitoring and reviewing software, systems and processes, and identifying opportunities for improvement, is essential. Training and sharing information with staff will be a critical part of managing any major changes to business operations.

Summary

Notwithstanding the uncertainties around the US election and the global impact that certain policy decisions may have, the economic outlook for businesses in Australia for 2025 is more positive than 2024. As long as we can avoid a recession, business confidence and consumer confidence are tipped to improve, after a tough year for many industries. Capital markets should respond positively as interest rates start to fall, which will present opportunities for investors, entrepreneurs and business owners.

*Please note that the above information is general advice only. We recommend you seek advice from a specialist relevant to your personal situation. This information is relevant at the time of publishing and is subject to change*