Continued economic uncertainty and market volatility are being driven by a combination of Trump's political agenda, the United States' escalating trade war with China, and the upcoming Australian Federal Election.
Recent statements from Trump suggest a reconsideration of the proposed tariffs on Chinese imports, indicating a potential de-escalation of the trade war. The S&P/ASX 200 Index and the Australian dollar showed positive reactions to these developments. Uncertainty still clouds the rate of de-escalation between the world’s two largest economies and where exactly the tariff rate will land.
Despite the shift in tariffs, the International Monetary Fund (IMF) has released updated global economic projections, revising down their global growth expectations. Global growth trajectory is now expected to decline due to a prolonged period of “unprecedented shocks.” The IMF’s World Economic Outlook report forecasts the Australian economy to grow at 1.6% in 2025, a reduction from the 2.1% projected in January. This weakened growth outlook is attributed to heightened global uncertainty, driven by rapidly changing policy positions, trade tensions, financial market adjustments, and deteriorating sentiment.
Domestically, the looming federal election is prompting caution, with many delaying decisions until the political landscape becomes clearer. The latest NAB Business Survey indicates that business confidence remains subdued, leading businesses to proceed cautiously. Global trade tensions could have significant flow-on effects for Australian businesses, including disruptions to supply and demand as well as inflationary pressures. Voters are closely observing how each party plans to manage the economy.
With trade tensions shaping the global outlook and exerting upward pressure on inflation, next week’s CPI figures will be closely monitored, particularly by the RBA as it prepares for its May monetary policy decision. While money markets and the Big 4 Banks anticipate a reduction in the cash rate in May, recent rallies in the S&P/ASX 200 Index may offer the RBA some flexibility for future rate adjustments.
Overall, the rapidly evolving economic and political landscape continues to drive market volatility and caution among Australian businesses.
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