MONTHLY ECONOMIC & INVESTMENT REVIEW
April 2025 Summary Points
- US reciprocal tariffs may impact Australian growth through China, our largest export partner. China is likely to expand its policy stimulus, focusing on consumption and stabilising the property market. Therefore, we believe Chinese growth will remain relatively unaffected compared to many of its trading partners.
- We expect the Reserve Bank of Australia (RBA) to continue interest rate cuts in 2025. Consequently, we remain favourable toward Australian government bonds. The global trade uncertainty and impact to global growth also supports this position.
- While unemployment remains low, both wage growth and job vacancies continue to fall, which suggests we should see the labour market begin to soften and a modest rise in unemployment in 2025.
- We continue to expect growth to remain weak, as cost-of- living pressures are likely to keep consumption suppressed. In addition, Geo-political concerns are likely to negatively impact businesses sentiment resulting in lower expected investment spending.
- The recent tariffs and resulting uncertainty are likely to push the US into a mild recession and cause a moderate slowdown elsewhere. The main impact on the US will be the sudden fiscal tightening due to the sharp rise of import prices.
- In Europe, a significant fiscal boost in Germany should support medium-term growth, though US trade tensions may pose challenges.
- Central banks around the world are likely to gradually cut interest rates in response to slowing growth. Meanwhile, the Bank of Japan is in a rate-hiking cycle, with further increases expected as inflation remains above target. These rises may be postponed, due to tariff uncertainty and a stronger yen. We continue to see further strengthening in the Yen vs the US dollar.
OUTLOOK
- Overall, we have a moderately negative outlook on growth assets as tariffs are likely to impact US economic growth in the coming quarters and the effect on corporate earnings is currently still underestimated by share markets. We favour Japanese shares due to the growth rebound and solid earnings growth.