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Key points:
- The RBA (unexpectedly) kept interest rates unchanged in July, but a further interest rate cut in August is likely.
- The August 1 tariff deadline is approaching. Trade deals being signed are for higher but not extreme tariffs but likely will still raise US prices and slow growth.
- Treasurer Chalmers will host an economic roundtable in August to focus on productivity, budget sustainability and economic resilience.
RBA interest rate cut expected in August after surprising hold in July
Economists and markets almost unanimously anticipated the RBA Board to further reduce interest rates at the July Board meeting. The RBA Board however voted 6-3 to wait for a little extra information on the trend for inflation. The majority viewed a cautious and gradual approach to easing monetary policy as being in line with the Board’s inflation and employment objectives. Three members thought global risks warranted further easing at the July meeting. The Governor subsequently communicated the decision to hold which was about timing rather than direction.
The rise in the unemployment rate to 4.3% in June revealed the week after the meeting makes that decision look overly cautious, though that data can be volatile. Unless Q2 CPI data is unexpectedly high, a rate reduction in August still appears likely.
What this means for your Business:
- A likely rate cut in August could reduce financing costs and support consumer demand.
- The RBA’s measured approach may influence the timing of investment decisions and cash flow planning.
Trade agreements with tariffs at 15% signed with Japan and EU
Temporary tariff delays and reductions had eased immediate concerns and allowed time for countries to negotiate trade deals with the US, helping reduce fears of severe economic fallout and supporting share market recovery. Important deals signed between the US and Japan and the EU as the August 1 tariff deadline approaches have produced a slightly higher than expected tariff, but not the exceedingly high initial rates threatened. Talks between the US and China are ongoing, and at this stage reportedly constructive. Even at less extreme levels, the tariffs work like a tax and most likely will act to slow US growth and raise prices.
Considerations for your business:
- Be prepared for slower growth and supply chain disruptions, particularly if you're involved in international trade.
- Scenario planning and diversifying trade relationships may help mitigate exposure to tariff risks.
Treasurer Chalmers Economic roundtable to address productivity and Budget reform
In part reflecting the global economic and geopolitical uncertainty while also seeking to capitalise on the government’s very strong election win, Treasurer Chalmers will host an economic roundtable of business leaders from August 19-21. The government’s primary focus is to seek input to improve Australia’s recent dismal productivity performance (broadly no growth for ten years, as shown in the graph below). Improving productivity is important because productivity and living standards are inextricably linked over the longer term. At the same time, demands on the budget – including from additional spending on defence and the care economy (health and ageing) – mean the government is also looking for ways to put the budget on a more sustainable footing. Together, the initiatives should help improve Australia’s economic resilience in this increasingly volatile global economic and geopolitical climate.
Opportunities for your business:
- Engage in shaping policy discussions around productivity and fiscal sustainability.
- Prepare for potential reforms in taxation, workforce development, and infrastructure that could influence long-term strategic planning.
