As Australia enters 2025, the nation is navigating a complex economic landscape characterized by a 4% unemployment rate and ongoing challenges related to cost of living and housing. Economists project that the Reserve Bank of Australia (RBA) may begin cutting interest rates in the first half of the year, with estimates suggesting three 25 basis point cuts, which could reduce mortgage repayments on a $600,000 loan by approximately $440 [07a8269e]. However, the Australia and New Zealand Banking Group (ANZ) forecasts only two cuts, leading to a smaller decrease of $181 [07a8269e].
Despite these potential rate cuts, inflation remains a pressing issue, with expectations that it will slow to the RBA's target band of 2-3%. However, the cost of living, particularly grocery prices, is unlikely to return to previous lows, indicating persistent inflationary pressures [d7b0ca64]. The economic outlook is further complicated by external factors, especially the sluggish performance of the Chinese economy, which significantly impacts Australia's export sector, accounting for a third of its total exports [dcb23ac7].
In addition to economic challenges, Australia is facing political dynamics, including a federal election due before May 2025. The potential return of Donald Trump as US president raises concerns about trade relations and tariffs that could affect Australia's economy [dcb23ac7]. The current Labor government is grappling with immigration pressures and cultural issues, which may lead to the rise of independent candidates and the possibility of a minority government [dcb23ac7].
As net migration from New Zealand to Australia continues to rise, with around 700,000 Kiwis residing in Australia, the implications of these economic and political factors extend beyond its borders, particularly affecting New Zealand's economic landscape [dcb23ac7]. Overall, while Australia enters 2025 in a 'reasonable economic shape,' the interplay of domestic and international challenges will be crucial in shaping its future trajectory [dcb23ac7][07a8269e].