Our economic outlook for Australia

For Australia, the direct impact of U.S. tariffs should be limited. The country exports a relatively small volume of goods to the U.S., and the reciprocal U.S. tariff rate on Australian goods was set at 10%, the lowest among affected countries, in early April. However, the indirect effects are likely to be more significant, including slower economic growth in China and a negative impact on domestic consumption and business investment confidence. Overall, we expect the Australian economy to grow around 2% over 2025, with policy easing partly offsetting the impact of uncertainty.

We anticipate that inflation will stay within the 2%–3% band targeted by the Reserve Bank of Australia (RBA), though it is likely to be toward the upper half of that range. A tight labor market will continue to exert upward pressure on unit labor costs, prolonging the disinflation process. Additionally, supply-side weakness, stemming from lackluster productivity growth, will remain a hindrance to faster disinflation in 2025.

Given the combination of weaker global growth and heightened uncertainty, we expect the RBA to adopt a dovish stance. The RBA cut its policy rate by 0.25 percentage points to 3.85% on May 20. We foresee two further quarter-point cuts this year.