For Australians who have struggled through what has been a difficult 2024, I have some bad news.
Next year is only going to get worse.
While all the talk has been about an expected decline in interest rates, even if that happens it is only part of the story.
The cost-of-living crisis will intensify and unemployment is likely to go up. More people out of work naturally puts more strain on the budget.
And while we’ve seen inflation start to come down recently, that’s only because of energy rebates, which presumably won’t continue through all of next year. When they stop, not only will energy prices rise, but inflation will instantly lift too.
There are plenty of reasons to think inflation in Australia will rise – not fall – throughout next year. The IMF is predicting it to go up, unlike in other similar nations around the world.
Higher than ideal inflation will limit the extent to which the Reserve Bank drops rates, unless they need to come down rapidly because of unemployment and a struggling economy, which is not a good reason for reductions.
It is likely rates will come down more quickly in other parts of the world compared with what happens here. That will include the U.S. where they are already falling.
The ‘same job, same pay’ rules – where the government aims to make sure workers who do the same job are paid the same if they are employed directly or through labour hire firms – will certainly lead to job losses in a fragile economic environment, writes Peter van Onselen
This means the Australian dollar will become weaker, which puts upward pressure on energy prices and consumer imports. These are key areas of concern when it comes to the cost of living. Many commodity prices are measured using U.S. currency.
While the Albanese government is talking a big game 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 rises on delay. So the rental market is going to get worse rather than better in 2025, as landlords continue to lift rents.
The Albanese government is pledging to reduce immigration because it wants to be seen doing something about the housing problem. But doing so will only intensify labour market constraints, especially in the building sector which is reliant on new Australian workers.
Ironically this could make new housing even more expensive, as would lower interest rates if the RBA capitulates to pressure from the government to drop rates even if inflation remains too high.
We’ll also see the impact Labor’s new industrial relations laws will have on doing business in 2025.
Productivity growth is already virtually non-existent. That’s only going to worsen next year. The ‘same job, same pay’ rules – where the government aims to make sure workers who do the same job are paid the same if they are employed directly or through labour hire firms – will certainly lead to job losses in a fragile economic environment.
If Donald Trump wins the U.S. presidential election in a few days’ time, look out, because he plans on imposing new tariffs on foreign goods coming into America.
This will include Australian goods, and the U.S. is our second-largest trading partner. A rise in protectionism will be bad for doing business right around the world, and if America does it there could be a contagion effect that results in other economies going down a similar path.
It is also likely rates will come down more quickly in other parts of the world compared with what happens here. That will include the U.S. where they are already falling
Australia is a trade-dependent nation, so we would be hit particularly hard by such a development.
Our largest trading partner is, of course, China, and its economy is already struggling and only predicted to get worse in 2025. That will have consequences for Australian exports, and that’s before we even factor in the likelihood of increased geopolitical tensions next year.
The ongoing war in Ukraine and the conflict in the Middle East are concerns before you even contemplate the risks of U.S.-China tensions growing under a possible Trump presidency.
More wars means more supply chain constraints, which contributes to high inflation.
And all of that is before you even consider what happens at the Australian election, due by May.
Irrespective of which major party wins, the likelihood is that neither will be able to form majority government. A hung parliament will make it even harder to achieve major economic reforms which are well overdue.
Throw in the odds-on scenario that the Greens end up holding the balance of power, perhaps alongside a grab bag of teals, and the sorts of reforms they would support are likely to do more harm than good to the Australian economy anyway.
So if you were hoping that next year would be better than this year, think again. While the dozen interest rate rises we’ve endured since the latest federal election won’t be emulated in the next term of government, thankfully, there are plenty of other problems afoot.
If Donald Trump wins the U.S. presidential election in a few days’ time, look out, because he plans on imposing new tariffs on foreign goods coming into the U.S.
I doubt Australia will slip into a technical recession, but we are already in a per capita recession, meaning that the living standards of individual Australians are declining rather than improving. That will continue next year.
The only reason the per capita recession isn’t a technical recession is because of immigration.
So buckle up for a rough ride in 2025, as the Australian economy limps along and the cost-of-living crisis and the housing crisis only get worse. Especially for mainstream Aussies in the suburbs.
The only thing that could make things even worse than I have outlined here is if regional Australia was hit by a severe drought. But that rarely happens in our sunburnt land, does it…
***
Read more at DailyMail.co.uk