This economic update was drafted on 10 April 2025, a relevant point of reference given the rapidly evolving global economic landscape. Domestically, economic indicators are showing signs of stability, but the global ramifications of tariffs are weighing on Australia. In our April 2025 economic update, we look at the current state of global markets, as well as the impacts on Australia.

Tariff takeover

President Trump’s ‘Liberation Day’ tariffs were a shock to markets and commentators, including many of Trump’s own supporters.

To demonstrate how far-reaching these tariffs are, they include the unpopulated Antarctic Heard and McDonald Islands, an Australian external territory located 4,100 kilometres southwest of Perth and accessible only by a two-week ocean voyage.

Mainland Australia was hit with the baseline 10% reciprocal tariff on almost all goods, with the 25% tariffs on iron and aluminium remaining. In his announcement, President Trump also claimed Australia has a ban on American beef, while Australia exports $3 billion of beef to America annually. This was an erroneous reference to restrictions Australia placed on beef in the wake of mad cow disease.

On 9 April 2025, President Trump announced a reprieve of sorts, reducing tariffs for all countries except China to the baseline 10% for 90 days. However, Australia remains in the same position it was prior to this announcement.

Since initially announcing these reciprocal tariffs, President Trump has outlined he’s open to reaching deals with countries on a case-by-case basis.

Prime Minister Albanese has ruled out the use of reciprocal tariffs of our own to strike back at America, and relaxing our restrictions on beef poses a biosecurity risk, leaving Australia with limited avenues for negotiating. That said, our abundance of rare earth elements may be a useful bargaining chip, given we rank sixth in the world for these reserves.

Impact on Australia

Most commentators acknowledge that the direct impact of tariffs on the Australian economy will be negligible.

The indirect impact of these tariffs, however, is far more likely to be detrimental Australia. In our last update, we outlined the adverse effects a trade war between the United States and China would have on our economy.

Since 2 April 2025, there has been a back-and-forth escalation of tariffs between the United States and China – Australia’s biggest trading partner. As at 9 April 2025, the United States had imposed a 125% tariff on Chinese exports to America, while China had slapped the United States with an 84% levy.

The United States accounts for 15% of China’s total exports, which totalled US$501 billion in 2023. American demand for Chinese goods will undoubtedly be impacted by the tariffs, further slowing China’s increasingly fragile economy. The flow on effects to Australia are subsequently becoming a concern.

However, permanent tariffs may open up new trade opportunities, as longstanding global trade routes are diverted, meaning the impact on Australia may not be entirely negative.

Inflation

Inflation continues to moderate. Australia’s core inflation rate currently sits at 3.2% (Q4 2024), is projected to reduce to 2.6% at the end of Q1 2025 and trend around 2.3% in 2026.

There are two ways this wave of tariffs could lower the trajectory of inflation in Australia.

Firstly, it may divert Chinese product from US markets to elsewhere, including Australia. This would mean cheaper goods entering Australia, having a deflationary effect.

Secondly, any increase in unemployment would reduce the inflationary pressure of wage and consumer spending growth. Australia is currently close to full employment, with the unemployment rate sitting at 4.1%. Unemployment is forecast to rise to 4.2% by June and trend around 4.7% in 2026. Reduced demand for Australian exports and slower growth due to broader trade tensions may increase unemployment further and faster than anticipated.

Interest rates

With deepening unease around an economic slowdown in Australia and potential recession in the United States, markets are unified in their prediction for a rate cut at the RBA’s May meeting. The real debate is around whether the cut will be the standard 25 basis points, or if the RBA will move to cut rates by 50 basis points.

The Westpac Consumer Confidence Index fell by 6% in April to a six-month low, with further drops expected over the coming months. A drop in consumer confidence may spur the RBA to encourage spending and investment via a bigger rate cut.

The ‘big four’ banks are all factoring in three to four further rate reductions across the remainder of 2025, meaning Australia may finish the year with a sub-3% official cash rate.

United States recession?

Global markets have become increasingly volatile over speculation surrounding a US recession. JP Morgan, for example, recently revised up its expectation to a 60% chance of the United States experiencing a recession in 2025. Goldman Sachs estimates the odds of a recession are 45%.

It is hard to make a prediction off the back of an upheaval of long-held economic and geopolitical norms, but speculation of a recession will likely continue to influence markets and policy decisions.

Australian property

Despite the uncertainty caused by Trump’s tariffs, CoreLogic Asia Pacific’s Executive Research Director, Tim Lawless, outlined the strength of Australia’s economy in a recent episode of Trilogy Talks.

Australia’s CoreLogic Home Value Index rose 0.4% month-on-month in March, the second consecutive increase after a three-month downturn. Sentiment has improved off the back of the RBA’s February rate cut, which broadly increased borrowing capacity. Adelaide (0.8%), Melbourne (0.5%), Brisbane (0.4%), Sydney (0.3%), and Perth (0.2%) were the capital cities that all recorded home value increases in March.

Federal election set for 3 May 2025

Australia heads to the polls early in May. On the campaign trail, both parties have pledged billions of dollars of spending. The election has so far been contested over economic policies, housing and infrastructure, tax and geopolitical relations.

The true impact of a potential change of government, as well as Donald Trump’s tariffs will unfold over the coming months. The Australian economy remains in a strong position relative to other nations around the world. As always, Trilogy Funds will continue to capitalise on all opportunities as they arise.

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