Margins, markets and moderation: why the economic playbook is changing

Economic Briefing - Key insights from Sally Auld

NAB Group Chief Economist | May 2025

NAB’s Chief Economist, Sally Auld, shared her optimism about Australia’s medium-term economic outlook with an audience of Lander & Rogers' people, clients, and colleagues. While acknowledging the shifts in the economic playbook in a post-globalisation era, she noted that structural changes in global trade are creating uncertainty for international markets. In this evolving landscape, Australia will need to reconsider how it defines and builds economic resilience.

Auld, who has recently commenced in the role as NAB's Chief Economist, joined Lander & Rogers in Sydney for a special breakfast briefing presented to more than 300 guests, in which she shared key insights on the global and local economy. Auld highlighted:

Global Economic Trends

• The global economy is undergoing a significant transformation. The long-standing period of low interest rates, stable inflation, and economic integration - often referred to as the "Great Moderation" - has come to an end. In its place, a more fragmented economic regime is emerging, shaped by rising concerns over economic security, growing protectionism, and increased reliance on state-driven policy tools such as tariffs, sanctions, and export controls.
• In response to this shift, many nations are turning toward re-industrialisation and regionalism. We’re seeing a resurgence in domestic manufacturing through near-shoring and friend-shoring strategies, supported by rising levels of public investment. At the same time, global consumption patterns are evolving. The epicentre of global demand is gradually moving from the US to Asia, rebalancing trade flows and altering the dynamics of global economic growth.

Trade with the US

• Despite its global significance, the United States remains a relatively small trading partner for Australia, accounting for less than 5% of total exports -mostly in beef, gold, and specialised products such as pharmaceuticals. However, tensions in US-China trade relations and unresolved tariff policies in sectors like steel, autos, and pharmaceuticals are contributing to price pressures and heightened uncertainty for Australian businesses operating in or trading with US-linked supply chains.

Australian Economy

• Domestically, the Australian economy faces several headwinds. Soft consumer demand and international trade tensions are clouding the near-term outlook. While housing prices remain elevated, building activity has not kept pace, contributing to a worsening supply-demand imbalance that continues to exert upward pressure on prices.

Inflation and Profitability

• Businesses across key sectors, including energy, construction, and retail, are continuing to experience pressure on margins due to persistently high input costs. However, there are signs of improvement on the inflation front. A recent moderation in housing-related inflation is helping to ease broader inflation expectations, offering some relief to firms navigating cost challenges.

Interest Rates

• The Reserve Bank of Australia is expected to shift toward a neutral policy stance, with the cash rate projected to settle at 3.1% (equivalent to a real rate of around 0.6%) by August 2025. This marks a pivot from a restrictive to a more supportive policy setting, driven by weaker domestic economic data. Globally, bond markets are also undergoing change. In the US, bond yields are rising in response to higher term premiums and growing fiscal concerns, signalling a departure from the ultra-low interest rate environment that followed the global financial crisis.

Labour Market

• A prolonged squeeze on business margins could begin to weigh on employment. Historically, sustained profit pressure has been associated with reduced hiring activity. If these conditions persist, we may begin to see signs of softening in the Australian labour market over the coming months.

Following the briefing, Auld was joined by Lander & Rogers partner and Real Estate & Projects practice group leader John Wells, The GPT Group Chief Investment Officer Mark Harrison, and Amazon's Director of Asia Pacific Janet Menzies for a panel discussion exploring the risks and opportunities facing businesses in the current economic climate. The discussion covered a range of themes including the anticipated impact of interest rate cuts on consumer sentiment, strategies for navigating ongoing geopolitical uncertainty, the evolving role of technology in driving business efficiency, and the resilience of Australia’s property and investment markets. Panellists shared sector-specific insights, noting that while there is cautious optimism about economic recovery, businesses are continuing to manage volatility and long-term planning with care.

The 2025 economic breakfast briefing was one of a series of such events hosted by Lander & Rogers in partnership with leading economists. For more information and to attend future briefings in Melbourne and Sydney, contact events@landers.com.au