Bendigo Bank's April Economic Update

Key takeaways:

• Tariff turbulence
• May most likely for second rate cut
• Gold shines in a volatile world.

As markets respond to US trade tariffs, Bendigo Bank’s Chief Economist David Robertson outlines what lies ahead, and identifies some encouraging signs of current strength and stability.

US tariffs risk RBA rates headache

Question marks over the medium and long term impact of US trade policies have taken centre stage, as hefty tariffs are rolled out on a so-called reciprocal basis.

As the RBA noted in their policy summary, uncertainty around the impact of the tariffs makes the job of setting the cash rate much more complex, Mr Robertson said.

“Australia is one of the least exposed to tariffs directly, given less than 5% of our goods exports head to the USA. So it will be indirectly, via our major trading partners, that we are likely to be most impacted.”

Mr Robertson said there is also a question mark over whether inflation around the world will edge higher with tariffs, or will the impact primarily be seen in the US, given history shows us that tariffs are generally paid for by consumers in the country imposing them.

“Conversely, will global demand slow down sharply, meaning all the more need for RBA rate cuts? Recent forecasts from the RBA and the OECD do show slower growth ahead in the US and to a lesser extent the global economy, but not at this stage a slowdown for our major trading partners,” Mr Robertson said.

“This will be a key variable for the rest of the year, and will depend on the degree to which countries retaliate to US tariffs, or perhaps seek more reliable trade partners elsewhere.”

May remains likely for next rate cut – cautious path ahead

The second cash rate cut is expected on May 20, Mr Robertson said, justified by another benign read for quarterly inflation (to be released on April 30) before another possible cut in August.

This will likely see the end of the rate cutting cycle, as the RBA watches for core inflation starting to show signs of edging higher (maybe as early as November).

Mr Robertson said there are three factors that continue to suggest only a shallow dip for interest rates from here:

• Resilient labour markets, with the unemployment rate remaining between 4 and 4.1 %
• Extreme policy uncertainty overseas especially around tariffs, and
• Ongoing public spending at state and federal level, meaning fiscal policy is potentially doing some of the work the RBA would otherwise have done via monetary policy.

Gold glistens as star performer

Despite the global turbulence, there are some key signs of current strength, Mr Robertson said.

“Amid all this uncertainty, volatility on financial markets is high, but the star performer on the markets has been the safe haven of gold, trading at a record high around US$3150 an ounce, up 40% in a year, and up 45% in Australian dollar terms.”

In another sign of strength, residential property prices rebounded by 0.4% in March, and so for the first quarter of 2025 are up 0.5% in capital cities, and 1.4% in the regions to fresh record highs.

“This suggests the dip we saw in the last quarter of 2024 is behind us. Good news for some, but not for housing affordability,” Mr Robertson said.

Federal budget

While last week’s federal budget contained few surprises, and the tax cuts announced were in response to bracket creep, it is clear that Australia now sits in a much stronger debt position than was forecast coming out of the pandemic, Mr Robertson said.

“We did move from surplus to deficit, although the deficit for FY25 was 1% of GDP, followed by 1.5% next financial year. Our debt profile remains sound in the short term (with gross debt to GDP peaking below 37%), keeping our AAA credit rating secure,” Mr Robertson said.

“This is a much stronger debt position than forecast coming out of the pandemic, but will require greatly improved productivity in the economy to afford necessary spending in the medium term.”

Watch David Robertson’s April Economic Update