Steady Growth, but Plenty of Challenges Ahead in 2025

2025 has already delivered a smorgasbord of global highlights and we’re only in the second month of the year! With changes of leadership in key allies across Europe, America and Canada, continued pressure from China to further its interests, and the 'will they, won't they' guessing game on borrowing rates at home, the 2025 economy has a lot of moving parts. Add in sluggish supply chains, the ongoing skills shortage, and a Federal Election here at home, and it’s hard to get a handle on just what to expect. Here’s a summary of some of the leading forecasts.

When it comes to the Australian economy, the one take-away from perusing the forecasts is that experts collectively seem to have no better idea of what will happen than you or I – but let’s take a look at where they agree…and where they don’t.

Good news is that latest Australian Industry Index® from Australian Industry Group (AiG) recorded significant improvement in November, giving us a bit of a boost as we head into the New Year. 

Their Australian PMI®, which charts results for all manufacturing industries, also improved slightly, with manufacturers noting a lift in overseas competition and a reduction of new orders for some markets. The softening of the AUD has also increased prices for some import-reliant businesses.

While activity in Australia’s industrial sectors, employment and new orders indicators all strengthened, AiG experts cautioned that improvements are more a matter of contraction easing than an actual expansion, however the broader trends suggest a modest improvement in overall industrial business conditions in the first half of this financial year.

Other experts, too, broadly agree that economic growth in Australia is likely to be better than last year – which is encouraging given that 2024 saw our economy experience its slowest year since the early 1990s. The IMF and KPMG both predict the Australian economy will grow this year – the IMF says by around 1.2%, KPMG just over 2% – but both warn that while growth may be resilient, several significant risks remain. 

At the top of the list is the rising geopolitical tensions headed by the recent wars in the Ukraine and Gaza, and potential changes to trade and fiscal policies thanks to the political changes across Europe, the US and Canada. 

The announcement this week that the Trump administration has introduced tariffs of 10% on Chinese imports, and even higher 25% on its near neighbours Canada and Mexico, give rise to uncertainty over trade relationships. While our government is at present taking the position that tariffs against Australian exports is unlikely, certainly the flow-on effect from tariffs can be felt far beyond the borders of the targeted countries and, with China such an important trading partner, what hurts them is likely to hurt us, also.

Speaking of China, that country continues to step up its rhetoric and threats over Taiwan and the South China Sea and, while there’s no reason to anticipate action on these fronts in the very near future, it’s one to watch, with trade traffic a likely casualty of any conflict. 

The uncertainty created by all these conditions not only impacts on consumer confidence but, as many in our industry know all too well, have a range of knock-on effects for business including ongoing supply chain disruptions – much improved from the height of the pandemic but still an issue.

On the local front, news for business is better. Core, or underlying, inflation has eased and is dropping to 3.2% in the December quarter – very close to the RBA’s ‘2-3%’ target range. This, together with the recent Consumer Price Index numbers – a 2.3% rise in the 12 months to November – is likely to give the RBA more confidence to proceed with interest rate cuts by Q2 this year.

Money markets are pricing in a 95% chance of a rate cut of 25 basis points at the RBA’s first Board Meeting in February (provided there are no more tariff surprises from the Trump administration). Many experts, including those from ANZ, Commonwealth Bank and Westpac – agree, with NAB reviewing it’s forecast at the time of writing. 

The main reason, if any, for reluctance on the part of the RBA may be due to the stronger-than-expected labour market, with unemployment still at around 4%.

While the skills shortage looks set to continue, the RBA expects tight labour market conditions to return to balance by late 2025, saying in its November Statement on Monetary Policy that it expects a slight rise in unemployment over the coming year, with slowing growth in wages over the same period.

Finally, the election. While many polls put Anthony Albanese’s Labour government and the Liberal opposition under Peter Dutton neck and neck for the Federal Election, the latest figures suggest a narrow win by the Liberal / National Party. With an effective three-seat buffer in Parliament, however, the question is whether the current narrow lead will be hold to get the Libs over the line, or whether Labour will be able to form a minority government.

Albanese still has a narrow lead in the Approval ratings and is a tiny squeak ahead in some of the November and December preferred Prime Minister polls, but with no election date set, and weeks if not months of campaigning still to go, the result is anyone’s guess. 

Aside from all these predictions, it’s clear that 2025 will bring with it a range of other changes, challenges and opportunities, driven by increased technological change – supercharged by AI – changing workplace regulations, and more. 

Whatever the future holds, Visual Connections will continue to work towards creating new opportunities for suppliers and industry businesses to connect with the people, technologies and insights required to build a strong, successful, businesses. 

With PacPrint in Sydney from 20-23 May, and a range of other exciting plans, we’re looking forward to the year ahead and keen to realise its potential for our industry. So, buckle up…and let’s go!