Weekend Edition: 2025 – The Year Australia Held Its Own
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What were the biggest economic headlines of 2025 and how did they set the stage for Australia’s outlook?
Well, on reflection, Donald Trump might have stolen a lot of the news headlines this year, and there have been fears that his tariffs would have far-reaching impacts on the global economy. But in reality, the year was driven more by concerns around inflation and the differing approaches taken by central banks. So let's look back at 2025 and see what 2026 has in store for us with three of our morning call regulars. The morning call from NEB. With Phil Dobby.
The weekend edition.
And Taylor Nugent, Rodrigo Catrill, and Ken Crompton are all with me for the last one of our year. So let me throw a few words at you to start with for twenty twenty five. Trump, AI, crypto, gold, war, inflation, and okay, cheating a bit, three words together higher for longer. It's hard to imagine, isn't it, that this was the year that Donald Trump took office again. Everything he's done recently has been Been this year and central banks have really kept us guessing none more so than the RBA. So let's start there. Taylor, remind us where we've been, 'cause this time last year, for example, I think some people were saying, well, maybe there's gonna be four, five or or six cuts from the RBA. Uh that didn't really happen, did it?
And now we're talking about rate rises for the new year.
Yeah, hello hello, Phil. I mean, if you act go back to uh the beginning of twenty twenty five, actually, you know, we were expecting three three or four rate cuts through the course of of twenty twenty five. The discussion was an RBA that had policy at about four point three five percent on on the policy rate. They had taken rates into somewhat restrictive territory, but they had taken a different approach to a lot of other central banks had. They weren't leaning as aggressively. Against elevated inflation, and they were, you know, seeking to manage the cycle without opening up spare capacity in in the labor market. And that approach meant that they were holding at the peak of their policy rate cycle for a little longer than other central banks.
But as we moved into 2025, they were kind of looking for the opportunity to take their foot off the brake a little bit and looking forward into an economy that they thought was nearing balance, and they wanted to make sure that they could support a pickup in activity growth provided that the inflation backdrop let them. And what we saw as we moved through 2025, that they saw enough in the inflation data to suggest that they were able to move policy rates a little bit lower, but moving them lower kind of gradually and cautiously because you know as with the the the without opening up spectrum. Capacity, they weren't easing into weakness. So it was, you know, easing. They found room to do uh the start and easing cycle in in February on the back of some benign-looking Q4 2024 inflation data.
Through the first half of 2025, inflation data looked okay, suggested that inflation was settling down near target, and the RBA thought that they were unnecessarily leaning uh against growth. Of course, you mentioned there in the intervention. Period. Um, you know, if you separate that domestic serv cycle and that domestic momentum from what was happening offshore, we've been on a a bit of a bigger round trip with certainly uh a big uh concern reflected in movements in in market pricing and in the RBA's uh thinking back in May as well about what the turmoil happening offshore could mean for Australia. But, you know, as we sit here at the end of twenty twenty-five. Uh you know, it doesn't look like those kind of tail risks that were the concern have been realised and so it's domestic cycle winning the day.
So NAB was a bit ahead of the game on this, weren't they? In the in that, you know, uh we were the first ones really to say, Well, uh we're not g you know, to towards the end of this year we're not going to see a a rate cut at the end of the year. We think it's going to be uh May next year before we see any cuts, and then that got translated into, Well, we're not gonna see any cuts at all, to narrow in the position of saying, Well, actually we think it it could even be February when we start to see a rate rise.
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Chapters
8 chapters
1
What were the biggest economic headlines of 2025 and how did they set the stage for Australia’s outlook?
0:01–4:00
2
How did the RBA’s decision to hold rates steady differ from other central banks in 2025?
4:00–8:08
3
What inflation data in August 2025 changed the RBA’s policy path?
8:08–11:58
4
Why is the Australian dollar more tied to China and Asian sentiment than to the US dollar?
11:58–16:02
5
How did New Zealand’s harsher monetary stance compare with Australia’s more measured approach?
16:02–19:54
6
What are the key drivers behind the strong demand for Australian government bonds in 2025?
19:54–24:29
7
What upside and downside risks could shape Australia’s economy and currency in 2026?
24:29–28:15
8
What is the outlook for Australian rates, bonds and the Aussie dollar heading into the new year?
28:15–31:56