Australians have endured taxing economic conditions in the past calendar year, but there is cause for cautious hope in 2025.

Long-awaited interest rate cuts are broadly expected in the first half of the year, providing household budgets with much-needed breathing space.

Market Economics managing director Stephen Koukoulas said healthier household incomes and a recovering global economy would support a moderate pick-up in Australia’s growth over the next 12 months.

Yet with the economic recovery mild and activity still overall lacklustre, the economist expected the jobless rate to creep higher, to around 4.5 per cent.

While not a “catastrophic” lift in unemployment, he told AAP a weaker labour market would be a light dampener on spending.

For the Reserve Bank of Australia, inflation remained the main game and Mr Koukoulas was confident price measures were heading in the right direction.

Much emphasis will be put on December quarter inflation figures, due at the end of January, as the key source of information ahead of the first RBA board meeting of the year in February.

Mr Koukoulas said the combination of progress on inflation, slowing wage growth and an easing jobs market – albeit gradually – should have the RBA “pretty content” to start easing soon.

He has pencilled in a fairly shallow easing cycle, of about three 25 basis point cuts.

Canstar director of research Sally Tindall said the depth of the easing cycle remained a source of uncertainty and warned borrowers not to re-jig budgets prematurely.

Under National Australia Bank’s expected scenario of five 25-basis point cuts by mid-2026, an owner-occupier with a $600,000 mortgage could wind up with a $440 reduction in their monthly repayments.

Yet if the central bank cuts only twice, as tipped by ANZ, only a $181 monthly repayment reduction can be anticipated in the same time-frame.

Ms Tindall said variable-rate mortgage-holders were on track for relief but was of the view 2025 was still going to be a tough year for many, with interest rates, rents and grocery prices “not going back to what they used to be”.

“We’re not going back to the days where rates were, you know, sitting in the twos,” she told AAP.

“And we’re not going back to the days of lower supermarket bills.

“They’re just not going to be rising by as much.”

Heading into 2025, the United States was the “great uncertainty” for Mr Koukoulas as Republican Donald Trump returned to the White House.

The economist warned a US-China trade war “would be really disruptive” were the incoming president’s tariff threats acted on and retaliated against.

“What he actually does versus what he’s actually said, of course, remains a huge issue,” he said.

It may not be all doom and gloom for the world’s biggest economy, with Mr Koukoulas highlighting proposals on government spending efficiency as a possible opportunity to get a handle on the nation’s budget deficit problem.

Back at home, a federal election could see voters bombarded with promises to ease cost-of-living pain from both sides of politics.

AMP chief economist Shane Oliver said the mid-year update showed a federal budget sliding back into deficit, in part reflecting higher spending on childcare and $5.6 billion in election goodies filed under “decisions taken but yet to be announced”.

“The upcoming election risks a further rise in government spending but is unlikely to result in a big change in near term macro-economic policies,” Dr Oliver wrote in a note.

Poppy Johnston
(Australian Associated Press)