Tax cuts and interest rate relief expected to drive gradual improvement
A bank executive has expressed optimism that economic conditions will improve in 2025, citing recent tax cuts, increased savings, and the potential for interest rate reductions in the coming months.
“It’s my view that we’re at the hardest point of the economic cycle right now, and things will get better from here,” said National Australia Bank (NAB) Group chief executive Andrew Irvine (pictured above).
He highlighted that tax cuts for Australians were being saved rather than spent, leading to rising deposit balances in the banking sector.
He also predicted that the Reserve Bank of Australia could begin cutting interest rates by mid-year, with two additional cuts expected before the end of 2025.
However, Irvine cautioned that households would remain under financial pressure until economic momentum picked up later in the year.
“People are juggling, people are budgeting, and they’re budgeting hard to make ends meet every single month,” he said, adding that Australia’s low unemployment rate remains a key stabilising factor.
“Typically, in my experience, as long as people have jobs, and there is income coming into the household, most bills, most mortgage payments are met, and the worst doesn’t happen.”
Irvine expects the economy to see gradual improvement throughout the year, with a significant psychological boost for consumers and businesses following the first interest rate cut.
“Businesses are confidence players, and frankly, consumers are too,” he said. “I think it will create a positive environment for spending and employment.”
Despite his optimistic outlook, Irvine acknowledged that business confidence had waned towards the end of 2024, as shown in NAB’s Business Survey. While business conditions remained stable, investment was being hampered by a lack of confidence.
“Too often, the economy is talked down when, in fact, there are plenty of reasons for optimism,” Irvine said.
He noted that many small and medium-sized enterprises (SMEs) — which he described as the “heartbeat” of the Australian economy — were still performing well, particularly those operating in resource-rich regions such as Queensland, Western Australia, and the Northern Territory. Sectors including energy, agriculture, and defence were also showing resilience.
“Businesses that focus on value and have strong value lines are trading well, as are those in the luxury goods sector or high-end restaurants,” he said.
However, Irvine acknowledged that businesses caught in the middle — those squeezed between high-end and value-focused competition — were facing margin compression and mounting pressure.
He also pointed to global headwinds, noting that Australia was not alone in experiencing an economic slowdown. He highlighted geopolitical risks, including trade policies in the United States, where newly elected president Donald Trump has signalled intentions to sharply raise tariffs.
But Irvine remained optimistic about Australia’s ability to navigate these challenges, crediting the diversification efforts of Australian businesses over recent years.
“Many Australian businesses have diversified their markets, not just in commodities and agriculture but across all sectors,” he said. “That puts Australia in a stronger relative position.
“This is testament to the hard work and achievements of many small and medium businesses. We’ve got good products and services to sell, and I continue to be optimistic.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
