While there will be no quick fixes for the coming year, some relief is on the horizon with inflation expected to ease and interest rates likely to drop. For example, falling interest rates will offer some relief for homeowners who are struggling with high repayments. In the meantime, the Reserve Bank of Australia (RBS) has said it will be firm about not reducing rates until inflation is fully under control.
If cuts do happen, they will likely take place at the RBA’s May board meeting. However, such cuts are likely to be limited so expectations should be limited. Regardless, Inflation is slowly retreating to the RBA’s target range of 2 to 3 per cent annually, offering some relief to household budgets.
Recent figures show headline inflation is at its lowest level since mid-2021 although underlying inflation is slightly higher. Economists predict continued moderation in 2025, supported by government measures like energy subsidies which are likely to be extended.
Australia will also likely see some growth but, again, any improvements will likely be limited. Positivity is growing as decreasing inflation means more spending cash for Australians but, as mentioned, interest rate drops are not expected to be significant. China, Australia’s largest trading partner, also continues to struggle economically, further limiting expectations. Regardless, economists say that we should not expect a boom but a slow and steady climb.
The economic pressures of 2024 hit some Australians harder than others, and that divide is likely to persist in 2025. Renters and mortgage holders bore the brunt of high rates and inflation, while older Australians with paid-off homes and investments fared much better. As conditions improve, renters and borrowers may get a small reprieve, but the pace of change will feel too slow for many.
On the international stage, the economic impact of Donald Trump’s second term as US president adds an element of unpredictability. Potential changes to tariffs and trade relationships, especially with China, could ripple through the Australian economy. Such elements add another layer of complexity and uncertainty in an already challenging environment.
Ultimately, 2025 is shaping up to be a year of gradual recovery but not dramatic change. While the road ahead may feel slow and uneven for many, the easing of inflation and interest rates offers hopes that a brighter future is not too far away.
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