Growth forecasts lower despite Australia’s trade advantages

Liam Cormican
02:30pm April 14 2025

Westpac Economics continues to expect a 25 basis point rate cut from the RBA in May, and two more 25 basis point rate cuts in the second half of the year. (Pexels)

Westpac Economics has trimmed its growth forecast for the Australian economy in response to recent shocks to markets following Donald Trump’s “liberation day” tariffs. 

Citing a weaker external environment and slower recovery in consumer demand, the team now anticipates a growth rate of 1.9 per cent this year, down from the previous forecast of 2.2 per cent. 

Matthew Hassan, Westpac head of Australian Macro-Forecasting said, “The turmoil has hit financial markets hard with signs that it is starting to weigh more heavily on confidence. 

“On balance we have trimmed our forecasts for the Australian economy, but only marginally.” 

Despite being relatively comfortable with Australia's trade exposures to the tariff war, Hassan expects there to be some impact and potential risks on the horizon. 

“There are clear risks around the course of the dispute from here, the policy response from China and the impact of a weaker global growth environment more generally.” 

The instability itself is a big part of what’s driving the shock to markets, he says. 

“The associated uncertainty is weighing heavily on confidence and will be paralysing decision-making. Business investment decisions are nigh-on impossible for those directly involved in the global supply chains currently facing tariff upheavals. 

“While these influences difficult to size, IMF modelling suggests they are of the same order of magnitude as the direct impacts on prices and trade flows.” 

On the plus side, Westpac Economics believe the bottom-line growth impact on Australia will be muted. 

One of the reasons for this is that Australia's exposure to the US tariff war is relatively small, with direct trade links accounting for only around 1 per cent of Australia’s Gross Domestic Product. 

Indirect trade links, particularly with China, do pose some risks, but the team expects them to be cushioned by China's domestic policy measures. 

Meanwhile financial market effects are likely to be marginal, according to Westpac Economics and confidence effects are likely to be small despite a recent drop in consumer sentiment. 

While the team believe the modest change in growth forecasts is unlikely to draw a response from the Reserve Bank of Australia, it will have cleared the way for a 25 basis point cut Westpac was already expecting for May. Westpac Economics continues to expect two more 25 basis point rate cuts from the RBA in the second half of the year. 

For more analysis from Matt Hassan and the rest of the Westpac Economics team, visit WestpacIQ.  

Liam Cormican

Liam is a reporter for Westpac Wire. He previously served as a financial journalist for Money Management and as a regional journalist in Nowra for Australian Community Media.

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