Economic and Markets Update – April 2025

The year has begun with significant economic and political developments: Trump’s second term, rising trade tensions, market volatility, the US Federal Reserve pausing rate changes, and an unexpected Federal Budget from Dr. Jim Chalmers ahead of the May 3rd election.

Federal Budget & Election Announcement

The delayed election announcement forced the government to deliver a budget it hadn’t planned for. Despite tax cuts and increased spending, the budget deficit is forecast to rise modestly from 1% to 1.5% of GDP by mid-2026 before declining. This is largely driven by optimistic assumptions about employment and wage growth.

Key budget measures include energy cost relief and healthcare spending in 2025-26, with tax cuts taking over as the main stimulus from mid-2026. While the government aims to sustain domestic demand, the increased bond supply may push Australian yields higher. Stimulus measures should enhance corporate earnings, particularly in retail (JB Hi-Fi, Tabcorp), utilities (AGL, Origin), and legal tobacco sales (Metcash, Viva Energy). Economists now anticipate three rate cuts this year, though tax cuts could prompt the RBA to tighten policy sooner than expected.

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