In the face of impending US tariffs, Australia’s economic revival hangs in the balance, with experts warning that rising trade tensions could elevate the rate of business closures across the nation. According to recent analysis from Westpac and the Melbourne Institute, Australia’s economy is projected to grow at 2.2% in 2025, a marked improvement from the 1.3% growth recorded in 2024. However, this forecast, while better than the OECD's prediction of 1.9% growth for 2025, still falls short of the country's historical growth rate of 2.5-3%.
Matt Hassan, head of Australian macro-forecasting at Westpac Economics, cautioned that the current growth appears more fragile than it seems. He remarked, “Importantly, the component detail suggests the improved growth pulse is more fragile than it looks.” Hassan pointed out that the improvement largely hinges on stronger commodity prices and a weaker Australian dollar, conditions which may be diminishing.
As such, the potential impact of US tariffs on global economic activity cannot be understated. Donald Trump’s recent imposition of a 25% tariff on steel and aluminum imports poses serious risks to Australian businesses, which are already facing cash flow challenges. The February 2025 Business Risk Index by CreditorWatch reflected a staggering 47% increase in invoice payment defaults, a trend that signals looming insolvency threats for many enterprises.
Patrick Coghlan, CEO of CreditorWatch, emphasized the concerning implications, stating, “We certainly hope that the worst-case scenario of a global recession doesn’t eventuate, but businesses should nevertheless be taking steps now to manage that risk.” Recent income tax cuts and interest rate reductions may offer temporary relief, yet the increase in defaults is a troubling omen that strongly correlates with a surge in business insolvencies.
The regions of western Sydney and southeast Queensland are reported to be among the hardest hit, with local businesses particularly vulnerable due to their exposure to construction and lower income levels. As Coghlan notes, if tariffs expand to cover additional goods, the ripple effects could worsen the credit cycle and heighten the risk of insolvency.
Amidst this economic uncertainty, Treasurer Jim Chalmers denounced the trade measures as a form of “economic self-harm,” asserting that such tariffs would lead to slowed growth and increased inflation. The political landscape is tense as well, with the opposition coalition criticizing the federal government for not securing an exemption from these tariffs ahead of upcoming elections. Shadow Treasurer Angus Taylor has faced mounting pressure to clarify the coalition’s economic stance while opposing significant government spending proposals.
At a recent business breakfast in Perth, Foreign Affairs Minister Penny Wong emphasized the global ramifications of Trump’s policies, stating, “President Trump’s American-first agenda envisages a very different role for America in the world and it is what the American people have chosen.” Wong has been vocal against the unjustified nature of these tariffs, remarking that they contradict the enduring friendship between Australia and the United States. “The Prime Minister has said these measures are entirely unjustified and against the spirit of our two nations’ enduring friendship,” she noted.
Wong reiterated the government’s resolve not to impose retaliatory tariffs, emphasizing that such measures would only exacerbate the cost of living for Australians. However, with further tariffs on external agricultural products slated for April 2, 2025, Wong's concerns are more pressing than ever. She has also chastised opposition leader Dutton’s claims about negotiating tariff exemptions, calling into question the feasibility of such deals.
Moreover, American pharmaceutical interests have spotlighted Australia’s $18 billion Pharmaceutical Benefits Scheme (PBS) in a recent formal complaint, urging Trump to impose punitive tariffs against Australia for allegedly damaging pricing policies. The Pharmaceutical Research and Manufacturers of America (PhRMA) claims that the PBS unfairly suppresses prices for American exporters and has directly appealed to the US administration for action. This situation places Australia’s health policies at a riskier intersection with international trade discussions.
Health Minister Mark Butler and Coalition health spokeswoman Anne Ruston have assured that the PBS will remain off trade negotiation tables, urging that discussions should not be a means to compromise the welfare of Australian patients.
With the looming possibility of more tariffs and the potential fallout on various sectors, including healthcare and mortgage markets, economic experts project several scenarios for Australians over the next year. According to Ray White Group chief economist Nerida Conisbee, there are three possible paths ahead: a global economic slowdown potentially leading to lower interest rates; the imposition of higher tariffs leading to economic stagnation; and worst, stagflation driven by a dip in China's economy.
“If global economic conditions deteriorate, we could see the three additional rate cuts that markets are currently expecting become a reality,” Conisbee added. While lower interest rates might seem beneficial in increasing borrowing power, they could also inflate property prices, putting homeownership further out of reach for new buyers.
Alternatively, if the trade tensions escalate and lead to rising tariffs, Australian house price growth may very well slow down. Buyers could find themselves with fewer options, as the real estate landscape starts to shift, favoring those in a stronger financial position.
Ultimately, it remains to be seen how the evolving trade landscape will impact Australian businesses and the mortgage market. Still, for consumers, it’s increasingly critical to prioritize long-term affordability amidst these uncertainties.
