Think 2024 has been tough? Here’s why 2025 is going to be even worse. PETER VAN ONSELEN unpacks the economic and political catastrophe facing Australia next year – and who will suffer the most

For Australians struggling through a difficult 2024, I have some bad news.

Next year it will only get worse.

While all the talk has been about an expected drop in interest rates, even if that happens is only part of the story.

The cost of living crisis will intensify and unemployment is likely to rise. More people without work obviously put greater pressure on the budget.

And while we have seen inflation fall recently, that is only due to energy cuts, which are unlikely to last all year round. If they stop, not only will energy prices rise, but inflation will immediately rise.

There are plenty of reasons to think inflation in Australia will rise – not fall – next year. The IMF predicts that this will rise, unlike other comparable countries in the world.

Higher than ideal inflation will limit the extent to which the Reserve Bank cuts rates, unless they need to fall quickly due to unemployment and a struggling economy, which is not a good reason for cuts.

It is likely that rates in other parts of the world will fall faster than what is happening here. This also applies to the US, where they are already declining.

The ‘same job, same pay’ rules – where the government wants to ensure that workers doing the same work are paid the same if hired directly or through employment agencies – are certain to lead to job losses in a fragile economic environment. writes Peter van Onselen

This means the Australian dollar is weakening, putting upward pressure on energy prices and consumer imports. These are major concerns when it comes to the cost of living. Many commodity prices are measured using US currency.

While the Albanian government is playing a big game when it comes to freeing up housing supply and putting downward pressure on property prices, rent increases have historically followed house price increases with a lag. The rental market will therefore deteriorate rather than improve in 2025 as landlords continue to raise rents.

The Albanian government is promising to reduce immigration as it wants something to be done about the housing problem. But this will only reinforce labor market constraints, especially in the construction sector that relies on new Australian workers.

Ironically, this could make new homes even more expensive, as well as interest rates if the RBA capitulates to government pressure to cut interest rates even if inflation remains too high.

We will also see what impact Labour’s new industrial relations laws will have on business in 2025.

Productivity growth is already virtually non-existent. That will only get worse next year. The ‘same job, same pay’ rules – where the government wants to ensure that workers doing the same work are paid the same if they are hired directly or through employment agencies – are certain to lead to job losses in a fragile economic environment.

If Donald Trump wins the US presidential election in a few days, watch out because he plans to impose new tariffs on foreign goods entering America.

This includes Australian goods, and the US is our second largest trading partner. An increase in protectionism will be bad for business around the world, and if America does so, there could be a contagion effect that causes other economies to take a similar path.

It is also likely that rates in other parts of the world will fall faster than what is happening here. This also applies to the US, where they are already declining

Australia is a trade-dependent nation, so we would be hit particularly hard by such a development.

Our largest trading partner is of course China, and its economy is already struggling and is only expected to worsen in 2025. That will impact Australian exports, not to mention the likelihood of increased geopolitical tensions next year.

The ongoing war in Ukraine and the conflict in the Middle East raise concerns before you even think about the risks of rising tensions between the US and China under a possible Trump presidency.

More wars mean more supply chain restrictions, which contributes to high inflation.

And that’s all before you even think about what happens in the Australian elections, which take place in May.

Regardless of which major party wins, there is a good chance that neither will be able to form a majority government. A hung parliament will make it even more difficult to implement major economic reforms that are long overdue.

Add to that the unlikely scenario that the Greens end up holding the balance of power, perhaps alongside a grab bag of teal, and the kind of reforms they would support are likely to do more harm than good for the Australian economy anyway.

So if you were hoping that next year would be better than this year, think again. While the dozens of interest rate hikes we’ve endured since the last federal election won’t happen in the next term of government, fortunately there are still plenty of other problems.

If Donald Trump wins the US presidential election in a few days, watch out because he plans to impose new tariffs on foreign goods entering the US.

I doubt Australia will enter a technical recession, but we are already in a per capita recession, which means the living standards of individual Australians are declining rather than improving. That will continue next year.

The only reason the per capita recession isn’t a technical recession is immigration.

So get ready for a rough ride in 2025 as the Australian economy limps and the cost of living and housing crisis only gets worse. Especially for regular Aussies in the suburbs.

The only thing that could make matters worse than I have outlined here is if regional Australia were to be hit by a severe drought. But that rarely happens in our sunburnt country, right…

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