Credit reporting agency says easing cycle likely to continue amid slowing growth
The Reserve Bank of Australia (RBA) is widely anticipated to lower the official cash rate by 25 basis points in July, following softer-than-expected inflation in May, according to CreditorWatch’s latest economic update.
If confirmed, this would mark the central bank’s third rate cut in 2025, with projections placing the year-end rate between 3.1% and 3.35%.
Ivan Colhoun (pictured), chief economist at CreditorWatch, said the decision was becoming more likely as economic pressures intensify. “Lower interest rates will help businesses and consumers alike by providing some offset to accumulated other cost pressures,” he said.
Despite Australia’s unemployment rate holding steady at 4.1% in May – a figure that continues to support consumer confidence – business sentiment deteriorated further. The NAB Business Conditions Index dropped to its lowest level since the global financial crisis, excluding the pandemic. Retail and manufacturing sectors reported the toughest trading conditions.
Colhoun noted that the current trend might point to a broader slowdown. “It’s not clear to what extent the May reading reflects initial tariff-related uncertainties... or a more fundamental easing in business activity,” he said.
Oil prices experienced sharp movements during June, driven by renewed conflict between Iran and Israel. Brent crude briefly surged to nearly US$80 a barrel before retreating to around US$68 as tensions eased. The month ultimately ended with prices little changed from May, offering some short-term relief to energy-exposed businesses.
The situation highlighted how geopolitical shocks are increasingly influencing economic conditions. Colhoun identified geopolitical risk as one of five long-term forces shaping business strategy over the next decade, alongside AI and technology, ageing populations, climate change, and rising inequality.
Business insolvencies in May held steady at elevated levels, continuing a plateau that began earlier this year. CreditorWatch's data also showed a stabilisation in B2B payment defaults.
“We attribute the levelling off as reflecting the beneficial effects of the mid 2024 income tax cuts and the cost-of-living support provided by state and federal governments,” Colhoun said.
While earlier rate cuts may not have had a full effect yet, further monetary easing is expected to cushion businesses from tariff pressures and other operating cost challenges.
Looking ahead, international trade developments could pose additional risks. A July 9 deadline is approaching for the United States to finalise trade agreements with key partners. Without progress, higher tariffs could be reinstated, affecting nations including China, Japan, and South Korea. While Australia may be less directly impacted, any disruption to global trade could weigh on domestic business confidence.
As the economy faces competing pressures from weak business conditions, global uncertainties, and fiscal stimulus, CreditorWatch also expects insolvency volumes to remain elevated – but stable – over the next six to 12 months.
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