Outlook 25: risk & opportunity

Calendar 2025 is shaping up as a classic ‘opportunities and risks’ year. In my view the former dominates, but there are plenty of the latter to keep risk management near the top of the agenda.

Interest rates are coming down, generally gradually, and in a way that suits local characteristics. Australia is the interest-rate laggard but likely to join the pack in the first half of 2025.

Lower interest rates keep recession risks very low. That’s good news.

Because the easing is gradual, economic growth won’t benefit too much. Wherever you are, economic growth in 2025 is probably going to be similar to what was seen in 2024. But sectoral outcomes will remain quite divergent.

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Lower interest rates will support private demand, but government agendas are substantial in their own right. Decarbonisation, defence, and dwellings are all on the public agenda to one degree or another.

Broadly, fiscal consolidation is hard to find. Coming after an already elevated level of public spending during the pandemic, governments remain both a more substantial contributor to activity than has been seen in decades, as well as a competitor for resources.

China remains on a different trajectory. Policy efforts are designed to provide a stable foundation for growth, rather than actively stimulating it. China’s demographic and debt challenges suggest there has been a structural shift in both the mix and level of its of growth. Expect an ongoing slowdown in 2025.

As the private sector and government are increasingly intertwined, the policy environment is hyper-relevant. The shadow of 2024’s ‘year of elections’ hangs over 2025. Incumbents have almost uniformly done poorly, suggesting policy change whatever the prevailing political stripe.

Lower interest rates imply traditional cyclical economic risk is diminishing. But there is enough flux between sectors - not least because of politics - to create plenty of opportunities. And also some risks.

Richard Yetsenga is Chief Economist at ANZ