US Recession Risks Rise: What It Means for Australian Businesses

The US economy is flashing warning signs—and the shockwaves will be felt across Australia.

Last week’s hotter-than-expected inflation data has rattled global markets, reinforcing fears that the Federal Reserve may be unable to cut interest rates anytime soon, even as US consumer spending slows and personal incomes fall. This scenario has prompted a growing number of economists—including deVere Group CEO Nigel Green—to warn that the US may now be heading straight into recession.

“The central bank is boxed in,” says Green. “Inflation isn’t cooling fast enough, and they can’t justify easing policy while these price pressures remain. But at the same time, the consumer is already showing signs of cracking under the weight of previous rate hikes.”

For Australian businesses, the implications are significant. With the US dollar firming in response to interest rate expectations, the Australian dollar may face renewed downward pressure—affecting trade, pricing, and investment decisions.

Key Predictions and Impacts for Australian Businesses

1. AUD Weakness Likely to Persist—But Volatility Will Dominate

The PCE index, the Fed’s preferred inflation gauge, rose to 2.3% annually, with core PCE hitting 2.7%. These numbers suggest that rate cuts in the US will be delayed. In the short term, that boosts the USD and places downward pressure on the AUD.

For Australian exporters, this could be a short-term win—particularly in sectors like resources, agriculture, and tourism where a softer Aussie dollar increases global competitiveness. But the volatility ahead could hurt importers, retail, and tech businesses dependent on USD-denominated goods and services.

2. Stagflation in the US Will Disrupt Global Confidence

“We’re looking at a sequence of events where tariffs drive up costs, fiscal spending fuels demand, the Fed remains sidelined, and consumers—already showing signs of fatigue—are squeezed further,” says Green.

That’s a textbook recipe for stagflation: low growth, high inflation, and policy paralysis.

For Australia, this risks:

Weaker demand from a key trade and investment partner
Reduced global appetite for risk, impacting equity markets and funding
Tighter global financial conditions, which may hit SMEs and startups reliant on offshore capital or loans

3. Tariffs and Trump-Era Stimulus Will Fuel Global Cost Pressures

New tariffs under President Trump’s administration are likely to raise the cost of US imports globally—especially if retaliatory tariffs follow. At the same time, massive new government spending programs—the so-called “big, beautiful bill”—may flood the US economy with stimulus at exactly the wrong time.

“Both will inject fresh inflationary pressure at the worst possible moment,” warns Green.

Australian importers could see further cost increases, particularly in machinery, electronics, and consumer goods tied to US supply chains. Businesses will need to factor in inflationary pressures not just domestically, but from US policy spillovers as well.

What to Watch in the Next 6–12 Months

AUD/USD Range: Expect the Aussie dollar to remain range-bound with downward bias if US rate cuts are postponed past Q1 2026.
RBA Response: If inflation risks re-emerge locally due to global pressures, the Reserve Bank may pause or even reverse easing plans—tightening conditions for local businesses.
Recession Timing: If the US tips into recession (a growing possibility), Australian exporters may face softer demand, but falling global rates could ease borrowing conditions later in 2025.

The Bottom Line for Australian Businesses

The US economy is at a tipping point. Sticky inflation, softening consumer data, and politically driven fiscal policies have created a dangerous policy bind—one that’s likely to drive volatility in currency markets, interest rates, and trade conditions over the coming year.

“The serious question is this,” says Green. “‘Is a US recession now inevitable?’ An increasing number of analysts would argue that it is.”

Australian businesses must now brace for prolonged currency volatility, shifting demand dynamics, and a changing global inflation landscape. Those who adapt early—by hedging currency exposure, revisiting pricing models, and monitoring input costs—will be best positioned to ride out what’s shaping up to be a turbulent 2025.

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