2025 Economic Outlook for Australian Businesses: Key Trends and Insights

As we move into the second half of 2025, economists are cautiously optimistic about a gradual economic recovery. Falling inflation and stable interest rates are offering some relief, but businesses still face ongoing challenges, including uncertainty from global events like a potential new round of Trump-era tariffs. 

So, what can small to medium-sized businesses in Australia expect in 2025?

Slow but Steady Recovery

After a sluggish 2024, most economists forecast that 2025 will mark the beginning of a modest economic rebound. Signs of this shift are already emerging:

• Consumer confidence rose sharply in early 2025, with the ANZ-Roy Morgan Australian Consumer Confidence index up 3.6 points in the first week alone.
• Consumers' outlook on financial conditions for the next 12 months jumped 5.7 points, while willingness to spend on major household items increased by 7.2%.

ANZ economist Madeline Dunk expects this momentum to continue, supported by:

• Stage 3 tax cuts
• Rising real wages
• Potential interest rate cuts later in the year

What's Driving Growth: Government Spending Over Households

Despite the uptick in sentiment, Morgan Stanley economists believe household spending will only rise modestly. Instead, government spending is expected to drive economic growth, especially in the lead-up to the Federal Election, scheduled before May 2025.

Meanwhile, the Reserve Bank of Australia (RBA) reported economic growth of just 0.8% in the year to September 2024, the slowest non-COVID growth since the 1990s. Unemployment remains low at 4.1%, but changes to student visa policy are expected to slow migration, reducing population-driven economic growth. 

NAB economists describe the current situation as a "soft landing", where individual household conditions are slowly improving, but private sector momentum, particularly business investment and housing construction, remains weak. 

Where are Interest Rates Headed?

In December, the RBA held the cash rate steady at 4.35%, noting that while inflation is falling, it's still above the ideal range. Headline inflation in the March quarter sat around the midpoint of the 2–3% target, while trimmed mean inflation eased to 2.9%. 

The RBA’s May forecasts suggested further easing ahead, supported by rising real incomes, improving private demand, and reduced financial stress.

However, June quarter CPI data came in slightly stronger than expected, prompting the RBA to pause rate cuts at 3.85% while it waits for clearer confirmation that inflation is sustainably on track to 2.5%.

Despite a 50-basis-point drop in rates since February, the outlook remains uncertain. Labour market tightness, global trade tensions, and sluggish productivity still pose risks. The RBA will continue to monitor data closely, particularly around wages, productivity, and household consumption, to determine whether further easing is justified in the coming months.

Trump Tariffs: What They Could Mean for Australia

With Donald Trump entering his second term, global markets are watching closely. Economists warn that proposed tariffs, especially on Chinese goods, could have mixed implications for Australia.

According to Westpac's chief economist Luci Ellis:

• Tariffs could raise prices in the US and reduce trade volumes
• In response, Chinese companies may shift production to countries like Mexico to avoid tariffs
• This could result in more Chinese goods entering markets like Australia, potentially at lower prices

Macquarie Group's chief economist, Ric Deverell, believes that while a tariff war may create volatility, it likely won't have a major negative effect on Australia in 2025. In fact, China may stimulate its domestic economy, which could boost demand for Australian exports.

Still, NAB's Alan Oster warns that tariffs generally slow economic growth and delay interest rate cuts, meaning Australian businesses should prepare for a bumpier recovery path. 

The Outlook for Small and Medium Businesses

For SMEs, the landscape remains challenging. Key concerns include:

• Persistent inflation in the cost of goods, services and labour
• Resource shortages
• Cautious consumer spending
• Pressure on cash flow and margins 

Dean Firth, head of Macquarie Business Banking, advises businesses to focus on what they can control:

"In this challenging environment, you need to focus on the things you can control, from cost management to smart financing decisions"

Business Finance Options in 2025

Despite the challenges, cash flow pressures are expected to ease in the short term. This makes now a strategic time to explore business funding options designed to help SMEs remain stable and scale.

Whether you're looking to:

• Upgrade equipment
• Manage seasonal cash flow
• Finance expansion or vehicles
• Invest in digital infrastructure

... there are flexible, tailored solutions available. 

At RLA, we work with a wide network of both banks and non-bank lenders to help you find the right finance solution for your business. With over 35 years' experience in North Queensland, we understand the local business landscape and tailor our services to support your goals.

Our team is here to do the hard work for you, from finding the right product to managing the application process and follow ups. Discover how RLA Finance can help move your business forward. 

Book your Free Consultation Today!