6 Jan 2025 | Economic Update

Quarterly economic update: October – December 2024

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As 2024 drew to a close, Australia’s economy presented a complex picture. Despite robust consumer activity and stock market performance, ongoing inflationary pressures, household budget constraints, and a decelerating property market tempered economic enthusiasm.

Monetary Policy at a Crossroads

The latter part of 2024 saw inflation in Australia showing signs of moderation. The trimmed mean inflation rate, a key indicator of underlying price pressures, decreased to 3.2% in November from 3.5% in October. In its December meeting, the Reserve Bank of Australia (RBA) maintained the cash rate at 4.35%, emphasising the importance of current policy settings in guiding inflation back to the target range.

The Australian Bureau of Statistics reported that the monthly Consumer Price Index (CPI) rose by 2.3% in the year to November 2024, a slight increase from the 2.1% recorded in October. Economic analysts are split on the trajectory of interest rates in 2025, with some anticipating potential rate reductions as early as February.

Household Spending Patterns Shift

Overall expenditure in the Australian economy grew by 1.5% in the September quarter of 2024, a deceleration from the 2.2% growth observed in the corresponding period of 2023. Essential spending declined due to lower fuel costs and energy assistance programs. Discretionary spending saw a modest 0.8% increase compared to the previous year, hinting at a potential economic upturn.

Interestingly, spending patterns varied significantly across age groups. Young Australians reduced their spending by 2% over the past year, while those over 60 increased theirs by 3.9%, and individuals over 70 boosted their spending by 7.7%.

Retail Surge During November Sales Events

The Black Friday and Cyber Monday sales in November saw Australians spend approximately $7 billion, marking a 4% increase from 2023. This growth was primarily driven by strong demand for electronics, clothing, and home goods. Notably, brick-and-mortar stores experienced a resurgence, contributing significantly to the overall sales increase.

Property Market Shows Signs of Cooling

Australia’s housing sector experienced a slight downturn, with national property values recording their first decline in nearly two years. CoreLogic data for December revealed a 0.1% decrease in dwelling values, attributed to higher interest rates, reduced borrowing capacity, and increasing living costs. The limited supply of new housing continues to exacerbate affordability issues.

Global Economic Outlook for 2025

The global economy is expected to maintain its resilience in 2025, despite significant challenges. The Organisation for Economic Co-operation and Development (OECD) projects global growth to stabilise around 3% in 2025 and 2026, supported by strong performance in emerging economies and gradual recovery in advanced nations. However, geopolitical tensions, persistent inflation in key regions, and potential monetary tightening remain areas of concern.

Anticipation Builds for New U.S. Administration

The upcoming inauguration of the Trump administration on January 20th has sparked discussions about potential economic ramifications. Key areas of focus include shifts in trade policies, tax reforms, and geopolitical stability. Early indications suggest a possible return to protectionist measures, including higher import tariffs from major trading partners. This could pose challenges for Australian sectors such as agriculture and mining, which rely heavily on access to the U.S. market.

Equity Market Outlook

Australian stocks concluded the year positively, buoyed by easing inflationary concerns in the U.S. and optimism about a soft landing for the global economy. The ASX200 recorded modest gains in December, aligning with broader global trends. However, financial experts caution that 2025 may bring increased market volatility, driven by geopolitical risks, fluctuating commodity prices, and uncertainty surrounding monetary policies.

Sources

abc.net.au/news/2025-01-08/inflation-monthly-consumer-price-index-november-2024/104794690

investordaily.com.au/news/56427-trimmed-mean-inflation-falls-in-november

rba.gov.au/media-releases/2024/mr-24-27.htmlhttps://news.nab.com.au/news/black-friday-sees-more-aussies-back-shopping-in-store

abc.net.au/news/2024-12-06/household-spending-increase-black-friday-tax-cuts-economy/104687870https://www.commbank.com.au/articles/newsroom/2024/11/CommBank-Cost-of-Living-Insights-Report.html

abc.net.au/news/2024-12-04/september-quarter-gdp-2024-australia-economic-growth-rises/104681106

abc.net.au/news/2025-01-03/2025-economic-forecasts-trump-china-interest-rates-inflation/104682104

corporate.vanguard.com/content/dam/corp/research/pdf/isg_vemo_2025.pdf

oecd.org/en/about/news/press-releases/2024/12/economic-outlook-global-growth-to-remain-resilient-in-2025-and-2026-despite-significant-risks.html

corelogic.com.au/news-research/news/2025/national-home-values-record-first-decline-in-almost-two-years

schroders.com/en-au/au/adviser/insights/australian-equities-2025-outlook-the-great-wave/

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