Adding to this is the chatter around our central bank, which has been under pressure to cut rates, but has largely resisted this, choosing instead to keep the cash rate steady at 4.35% – a position it’s held since November 2023.

Reflecting on how the Aussie economy has performed in 2024 – and how it might fare in the following year, given various headwinds including a second Trump administration in the U.S. and a continuing slowdown in China – ANZ senior economist Catherine Birch contributed several thoughts on the outlook.

Starting with the recent GDP numbers, Ms Birch said it showed the impact high inflation has been having on Australia.

“We did see the slowest annual GDP growth in Australia outside of the pandemic, since the 1990s recession, and that does show the economy is really feeling it at the moment,” Ms Birch explained.

“We have seen inflation really be a challenge for the economy. That has certainly caused some challenges for many industries and parts of the economy: construction is a big one in particular.

“We know a lot of construction firms have really struggled with the sharp rise we’ve seen in input costs. And some of the supply disruptions have really constrained how much can really be done, and therefore limiting growth as well.”

In response to high inflation, the RBA had taken a tough line on rate cuts – and had received pushback for this. But Ms Birch said it’s important to remember Australia had differed from other countries in terms of its initial experience with inflation, and how the RBA had chosen to respond to this.

“We saw inflation pick up later, we saw it peak later, but it’s also been slower to come down as well,” she said.

“And one of the differences, not only in the timing of rate changes versus other central banks, is that the RBA took our cash rate to 4.35% – well below a lot of comparable economies.

“For example, over in New Zealand, their OCR peaked at 5.5%, we saw over in the US, the rates peaked at 5.25-5.5% as well.

“So one of the reasons the RBA did that was that they were willing to tolerate a slower return of inflation back to target with the benefit being that unemployment wouldn’t rise as much if they took rates even higher to try and get inflation back to target sooner.”

Indeed, evidence of a consistently resilient labour market in Australia seems to have justified the Reserve Bank’s actions.

Looking into the new year, it was likely that – unexpected data notwithstanding – the RBA’s cautious policy would be likely to continue.

“We’re expecting that the RBA will start to cut rates in May and that there will be only two 25 basis point rate cuts in this cycle – so getting down to 3.85% by August next year, and then staying there,” Ms Birch said.

“A lot of people might not want to hear that sort of forecast. It will depend quite a bit on the data as to when the cuts start.

“If we see inflation and labour market data and household spending becoming weaker than expected over the next couple of months, it’s possible that they may start to cut rates in February.”

Turning to global headwinds in 2025, Ms Birch said the key word guiding predictions for both the Australian dollar and commodity prices was ‘volatility.’

The former would be likely to drop in the first half of the year, influenced by the anticipated impacts of Donald Trump’s promised tariff policy.

“We think that we’ll be seeing, by the middle of 2025, the Aussie dollar at around 63 US cents, but potentially there are periods where it gets lower, closer towards the 60 cents mark,” she said.

However, Ms Birch added several variables would enable Australia’s economy to survive these headwinds, with the dollar moving back towards 67 cents in the second half of 2025.

“We think Australia is still relatively well placed compared to a lot of other economies in terms of our growth outlook, and also our ability to deal with any shocks coming up as well, so that room we have on the fiscal policy side and monetary policy side,” she said.

Geopolitical and global economic volatility would likely also retain the strength of gold as a safe haven, she added, while other commodities would be shaped by trends coming out of Beijing.

“We think about something like lithium – the oversupply in batteries that we’re seeing in China will likely limit the near-term outlook at least, but the longer-term outlook still looks really positive,” Ms Birch said.

“And then of course there’s the China story as well: With that slowdown, that structural weakness that we’re seeing in the property sector only being partly offset by some of the stimulus measures and the move towards those new productive forces.

“So more investment in renewables and things like EVs and green infrastructure. Now, those sorts of things should boost things like aluminium and copper and some supply disruptions in those metals should also protect any price downside.”

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At its final meeting for the year, the RBA announced the cash rate would stay at 4.35% – a position it has been at since as far back as November 2023 when it was pushed up from a previous setting of 4.10%.

The RBA’s decision to keep the rate steady over nine consecutive meetings had seen it deviate from the actions of many other central banks, which have eased rates in the face of a global prevalence of higher prices.

Heading into the decision on Tuesday, the consensus held the cash rate would remain at 4.35%, with none of Australia’s four leading banks expecting a rate cut after the December meeting – although they were divided in expectations for future decisions.

Westpac, NAB, and ANZ are predicting rates won’t be eased until May 2025, while the Commonwealth Bank has been more optimistic, plumping for a likely cut in February.

It is no secret the RBA’s steady position over more than two years has been an unpopular one, and this meeting in particular attracted calls from various players such as economist and journalist Stephen Koukoulas and the Australian Council of Trade Unions (ACTU), both of whom urged a rate cut in the lead up to Christmas.

In his letter to the RBA Board, Mr Koukoulas said the ‘error’ it was making with monetary policy was “unnecessarily damaging the economy and society”. Meanwhile, ACTU secretary Sally McManus said the central bank had got it wrong in arguing to keep the rate on hold in order to retain a strong labour market.

“The RBA is out of touch and out of step. There are real people behind the statistics they see; real people who are being smashed by their refusal to join the rest of the world starting to cut rates,” she said.

“We are concerned the RBA is making a serious mistake by keeping rates too high for too long. They were wrong on wages – there was no wages spiral. They were blind to price gouging when it was obvious to everyone. And their outdated idea that unemployment needs to go up is also wrong.”

The Reserve Bank’s decision was preceded by data released by the Bureau of Statistics (ABS) last week, which showed Australia’s economy is growing at its slowest pace in decades, with annual GDP growth for the third quarter slumping to 0.8% in spite of record rates of government spending.

Economists had expected a rate of 1%, but the reading indicated weak growth was a continuing trend, following a sluggish performance in the June quarter.

The following day, the ABS reported household spending had grown 0.8% in October – seasonally adjusted – with spending in all nine categories; the overall number showed a recovery from a 0.2% drop in September, and a 0.3% rise in August.

Analysts however, were cautious about whether the trend would be sustained.

Just hours ahead of the RBA decision on Tuesday, the news flow turned negative again, with a NAB survey indicating business confidence had dropped eight points (for a reading of -3 points) in November.

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The Reserve Bank of Australia elected to leave the rate on-hold at 4.35% during its August 5-6 meeting, with this being the seventh consecutive meeting without a change, since the cash rate was raised back in November 2023, from 4.10%.

Leading up to the decision, investment bank analysts had predicted the RBA would keep it unmoved, with this confidence largely boosted by a CPI reading released the previous week which showed a trimming of mean inflation for the June quarter to 3.9%, down from 4.0% in March, with this being lower than the market had expected.

However, following the decision, Reserve Bank Governor Michele Bullock told the press: “Make no mistake: inflation is still too high, and the board does remain concerned about the degree of excess demand in the economy”.

Explaining that the inflation rise had started during the Covid-19 pandemic – when supply shocks coalesced with growing demand for goods – Ms Bullock said the former had largely worked their way through the system, but demand was continuing strong.

With this in mind, she said the RBA needed to ‘stay the course’ to keep inflation in check, and ideally get it back to the target range of between 2 and 3%.

“The more inflation remains elevated, the more it hurts everyone,” she added.

Saxo Head of FX Strategy Charu Chanana said that while the decision to pause the cash rate had been priced-in, a lack of guidance from the RBA regarding future strategies to tackle inflation was concerning.

“While markets have removed the odds of another rate hike from the RBA after the softer Q2 CPI last week, there were no clear signals from the meeting for the markets to start considering rate cuts,” she said.

She noted that changes in the global economy had now put the onus on other central banks to consider rate cuts.

Thus, stronger statement might have been needed from the RBA, given recent global economic volatility – with recession concerns still in the background, despite markets making a recovery following a two-day rout on Wall Street at the beginning of the week.

Australia’s currency could be particularly hard-hit by hints of recession – Ms Chanana said – given the likely negative impact on commodity prices, a key driver for the Australian economy.

“There has been a sharp selloff in global equity markets amid increasing concerns about a US recession,” Ms Chanana said.

“This has accelerated calls for the Federal Reserve to deliver rate cuts sooner, potentially even before the September meeting, or to go big with a 50bps cut in September.

“Given the shift in the macro backdrop, the RBA lack of guidance on its rate cut plans at the August meeting seems to be a misstep: this could be problematic if global growth deteriorates beyond the soft landing many have hoped for.”

Head of macroeconomic forecasting for Oxford Economics Australia Sean Langcake said the August meeting had been a ‘close-run decision’ until the CPI release had come in last week.

But he expressed concern about the inconsistency of what the Reserve Bank was saying about sticky inflation in the economy, and what they were actually doing.

“The RBA’s statement remains vigilant against upside risks to inflation. But once again, the RBA’s cautious and hawkish messaging has not been backed up with any action,” he said.

“The RBA’s forecasts are projecting a more volatile path for inflation due to the impact of government policies announced in the last budget.”

He added that the RBA seemed to be watching the Australian economy for signs of sluggishness – appearing concerned about a weaker outlook for jobs in particular, although a rate cut this time around could have kickstarted a pushback on inflation trends.

“Interestingly, underlying inflation is now expected to chart a slower course back to the midpoint of the target range,” he said.

“But this outlook has not stirred the RBA to action this month. Indeed, this outlook is tempered by a slightly weaker outlook for the labour market than the one presented in the May forecasts.”

Mr Langcake said a rate cut was not likely until early 2025.

The decision – which was predicted by all four major banks – means the cash rate has remained steady since November 2023, when it moved up from a previous reading of 4.10.

Investment bank analysts echoed these predictions, with Morgan Stanley, Citigroup and UBS all expecting the rate to remain on-hold in August, and two of these anticipated the RBA remaining hawkish on the pause until mid-2025, before cutting again.

Morgan Stanley was of the belief that rates could drop in May 2025, while UBS was convinced the cut would come in August of that year.

Head of FX Strategy Charu Chanana at Saxo had also anticipated that rates would remain at 4.35%, citing a somewhat optimistic inflation reading released on July 31, which showed mean CPI for the June quarter had been trimmed back to 3.9%, compared to 4.0% in March.

This data was higher than the RBA’s prediction 3.8% CPI for the June quarter, although the market had set its prediction at 4.0%.

“Last week’s softer than expected inflation report has eliminated the prospect of a rate hike from the RBA,” Ms Chanana said.

“The Overnight Index Swap (OIS) curve is now factoring in a November rate cut from the RBA, indicating the RBA is unlikely to support the AUD.

“The AUD is also under pressure due to a shift in global sentiment adversely affecting activity currencies.

“Additionally, the AUD is at risk due to the weakness in the Chinese economy, and is likely to lose ground against other activity currencies like the NZD, where rate cuts are largely priced in.”

Previous to the CPI reading, many economists had priced in a rate rise in August.

In its statement on Tuesday, the RBA committee said that longer-term patterns showed that inflation was a persistent issue, stating that ‘In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters.’

They also spoke of uncertainty about the future performance of the Australian economy overall, noting that while labour costs remained strong, there had been a lag in GDP growth, a rise in unemployment, and reports of businesses feeling under pressure.

The move had been widely anticipated by all of Australia’s big 4 banks, as well as investment bank analysts at Morgan Stanley, Citigroup and UBS.

Morgan Staley see the next meeting – in August, under the RBA’s 2024 meeting calendar – as posing a distinct risk of a rate rise.

Markets will now turn towards digesting the RBA minutes, but at this point, the story is pretty familiar to traders. We might get a cut later this year, but a lot of firms are calling early 2025.

As for the ASX, if there’s a widespread caution that the RBA could raise, it wasn’t obvious on the bourse.

The ASX200 posted its best gains in two weeks on Tuesday, up 0.9% to kick off lunchtime. All sectors were in the green.

Many analysts had been calling a November rate rise, but ANZ, long in Camp November, recently pushed out its forecast to early 2025. No shortage of counterparts have followed.

Markets in the US are divided on whether the US will cut this year in September or closer to Christmas. However, a 2024 cut is being priced in far stronger for the United States than what is the case down under.