Going for growth
Growth in Australia was subdued in 2024, but with factors such as tax cuts rolling through the economy, growth is set to be stronger next year.
“The challenge, of course, will be to calibrate what happens with monetary policy and what also happens with the Trump trade war,” says Deverell.
“If Mr Trump comes out really fast and puts in big tariffs, that's likely to have a reasonably big impact. But if that does happen, China will probably also stimulate their domestic economy, which might be good for Australia,” he says.
“So, net-net, I think it will drive volatility, but I don't see it having a really big impact over 2025.”
All eyes on the RBA
When it comes to crucial decisions like setting the cash rate, the Reserve Bank of Australia’s (RBA’s) focus is on inflation. In Australia, inflation has been sticky on the way down, after lagging the rest of the world on the way up.
“Governor Bullock has made it very clear that they won't be cutting until inflation moves back into the range,” says Deverell. “And that's probably not until well into 2025.”
The labour market is also a consideration for the RBA, after a surprisingly resilient 2024.
"That's part of the challenge the RBA faces, because they think unemployment is too low at the moment. They think it's below what they call the ‘natural rate,’ and they would like it to go up a bit,” says Deverell.
“I think it probably creeps up a bit over the next year, but I think it's reasonably stable.”
Spotlight on: residential property
The residential property market has had a resilient few years since the pandemic, but softer and slowing growth in recent months could be a sign of the year to come.
“Most recently, it looks like in Sydney and Melbourne, prices have started to flatline and maybe fall a bit,” he says.
“In places like Perth, they're going up a lot and I think that will continue – so, it's not one property market. But in the big ones, Sydney and Melbourne, I think it's going to be flat for an extended period.”
Rational optimism
The years since the pandemic have been challenging for Australian businesses, and 2024 was no exception. Though the volatility of the pandemic’s peak and immediate aftermath has settled, cost pressures and competition for talent remain a persistent feature of the business landscape.
“I think 2025 will continue to present challenges, anchored to the cost of living, the cost of goods and services, the cost of labor and the overall cost of doing business” says Dean Firth, Head of Macquarie Business Banking.
“In this challenging environment, you need to focus on the things you can control,” he adds.
It’s also worth considering the longer-term and the range of reasons to be optimistic about Australia as a place to live, a place to work, a place to invest in and a place to do business, says Firth.
For example, GDP per capita gives an indication of income per person, and though it has its limitations as an average figure, it’s one measure that shows how Australia ranks on the global stage. Australia is currently in 11th position out of 195 countries, above Austria and below Netherlands1.
Another example is Australia’s current and projected population growth, which puts the country in a competitive global position. The Australian population is projected to increase by four million in the next decade2 and demographer Bernard Salt projects that Australia will be one of the few developed nations still growing at the end of the 21st century.
“Without a doubt, it continues to be a challenging time for all businesses, after an exceptionally tough few years following the end of the pandemic, particularly in relation to the cost of borrowing, with interest rates at their highest point in more than a decade,” says Firth.
“And yet there continues to be reasons to be rationally optimistic about the opportunities that will be represented in the longer term. An ability to embrace, adapt and embed change continues to be a vital characteristic for all successful business leaders.”
