For Australians who have been through what has been a difficult 2024, I have bad news.
Next year it’s only going to get worse.
While all the talk has been about an expected drop in interest rates, even if that happens, it’s only part of the story.
The cost of living crisis will intensify and unemployment is likely to rise. Naturally, more people out of work means more pressure on the budget.
And while we’ve seen inflation start to come down recently, that’s solely due to energy rebates, which presumably won’t continue throughout next year. When they stop, not only will energy prices increase, but inflation will also instantly increase.
There are many reasons to think that inflation in Australia will increase – not decrease – over the next year. The IMF predicts it will increase, unlike other similar nations around the world.
Higher than ideal inflation will limit the extent to which the Reserve Bank will lower rates, unless they need to come down quickly due to unemployment and a struggling economy, which is not a good reason for reductions.
Rates are likely to fall more quickly in other parts of the world compared to what is happening here. That will include the United States, where they are already falling.
‘Same work, same pay’ rules – where the government aims to ensure that workers doing the same job receive the same pay whether they are employed directly or through labor recruitment companies – will certainly lead to job losses in a fragile economic environment. writes Peter van Onselen
This means the Australian dollar will weaken, putting upward pressure on energy prices and consumer imports. These are key areas of concern when it comes to the cost of living. The prices of many commodities are measured in US currency.
While the Albanian government is talking a lot when it comes to trying to free up housing supply and put downward pressure on property prices, historically rent increases tend to follow house price increases with a lag. Therefore, the rental market will get worse rather than better in 2025, as landlords continue to raise rents.
The Albanian government is committed to reducing immigration because it wants to be seen as doing something to solve the housing problem. But doing so will only intensify labor market constraints, especially in the construction sector, which relies on new Australian workers.
Ironically, this could make new homes even more expensive, as well as lowering interest rates if the RBA capitulates to government pressure to lower rates even if inflation remains too high.
We will also look at the impact Labour’s new industrial relations laws will have on business in 2025.
Productivity growth is already practically non-existent. That’s only going to get worse next year. ‘Same work, same pay’ rules – where the government aims to ensure that workers doing the same job receive the same pay whether they are employed directly or through labor recruitment companies – will certainly lead to job losses in a fragile economic environment.
If Donald Trump wins the US presidential election in a few days, be careful, because he plans to impose new tariffs on foreign products entering the United States.
This will include Australian products, and the United States is our second largest trading partner. An increase in protectionism will be bad for doing business properly around the world, and if the United States does so, there could be a contagion effect that results in other economies following a similar path.
Rates are also likely to fall more quickly in other parts of the world compared to what is happening here. That will include the United States, where they are already falling.
Australia is a trade-dependent nation, so we would be particularly affected by such an event.
Our biggest trading partner is, of course, China, and its economy is already struggling and is only expected to get worse in 2025. That will have consequences for Australian exports, and that’s before we even take into account the likelihood of a rise in geopolitical tensions next year.
The ongoing war in Ukraine and the conflict in the Middle East are concerns even before contemplating the risks of tensions between the United States and China rising under a possible Trump presidency.
More wars mean more supply chain constraints, which contributes to high inflation.
And all of that is before even considering what will happen in the Australian elections, scheduled for May.
Regardless of which major party wins, chances are neither will be able to form a majority government. A hung parliament will make it even more difficult to achieve important long-overdue economic reforms.
Add to this the scenario that the Greens end up holding the balance of power, perhaps along with a bag of surprises, and the kind of reforms they would support are likely to do more harm than good to the Australian economy anyway.
So if you were hoping next year would be better than this one, think again. While the dozen interest rate increases we have suffered since the last federal election will not be emulated in the next term of government, fortunately, there are many other problems afoot.
If Donald Trump wins the US presidential election in a few days, be careful, because he plans to impose new tariffs on foreign products entering the US.
I doubt Australia will fall into a technical recession, but we are already in a per capita recession, meaning Australians’ living standards are declining rather than improving. That will continue next year.
The only reason the per capita recession is not a technical recession is because of immigration.
So prepare for a rough ride in 2025, as the Australian economy limps along and the cost of living crisis and housing crisis only get worse. Especially for traditional suburban Australians.
The only thing that could make things worse than what I’ve described here is if regional Australia were hit by a severe drought. But that rarely happens in our sunburnt land, right?