US Recession Looms for First Half of 2025: What Does this Mean for Australia?

A US recession is now expected in the first half of 2025, setting the stage for the most significant economic disruption since the global financial crisis of 2008.

This is the stark warning from the CEO of global financial advisory and asset management organisation, deVere Group, as mounting pressures across key economic indicators are converging, making this downturn increasingly inevitable.

“The cracks in the US economy are deepening. Trump’s on-off and erratic tariff policies have introduced heightened uncertainty for businesses. The damage has already been done. Market waves of uncertainty have taken their toll, and businesses are scrambling to mitigate costs they never asked for. Global trade flows are adapting to a world where the US is no longer the dominant, reliable player it once was.

“Also, growth is stalling under the weight of still-elevated interest rates, persistent inflationary strains, and mounting geopolitical uncertainties,” says Nigel Green.

“Consumer spending—the longtime bedrock of US economic resilience—is showing clear signs of fatigue.

“Retail sales data suggests households are prioritising necessities over discretionary purchases, a classic precursor to economic contraction.

“Business investment, meanwhile, is cooling, with firms pulling back on expansion plans in anticipation of weaker demand.

“Corporate earnings reports already hint at squeezed margins, and labour market strength—once a reassuring factor—now appears more fragile than headline figures suggest.”

The Federal Reserve’s current federal funds rate stands at 4.25%–4.50%, as confirmed during its January 2025 meeting. While these rates were kept high to combat inflation, the economic strain is becoming increasingly evident.

Mortgage rates remain elevated, with the average 30-year fixed mortgage rate hovering around 6.65%, further dampening consumer and business sentiment.

“We expect the Fed is now likely to begin cutting rates to counteract a sharper downturn. But the effectiveness of such cuts remains uncertain, as recessionary pressures are already firmly in place,” notes the CEO of deVere.

For the global economy, the ramifications will be profound. The US remains the world’s largest economy, and as it falters, it will impact countries far beyond its borders.

Major trading partners, from Europe and Australia to Latin America and Asia, will face declining export demand.

In the corporate world, recession fears are already shifting behaviour. Hiring freezes and layoffs are gaining traction across multiple industries, from technology to financial services.

Private firms are pausing major acquisitions, wary of overpaying in an environment where valuations could sink.

Credit markets are tightening, and small businesses—more dependent on accessible financing—are feeling the strain first. As growth slows, defaults will rise, and market sentiment will shift accordingly.

What This Means for Australia

As a close economic partner of the US, Australia will not be immune to the ripple effects of a downturn. A US recession could have wide-ranging consequences for Australian businesses, trade, and economic growth.

1. Trade and Exports: The US is one of Australia’s largest trading partners, and a slowdown in American consumer demand could hit Australian exporters hard, particularly in industries such as resources, agriculture, and manufacturing. Mining exports, including iron ore and coal, could see price volatility as global demand shifts.
2. Investment and Market Confidence: Australian financial markets are highly interconnected with the US. A decline in Wall Street confidence often translates into volatility on the ASX. If foreign direct investment from the US slows, Australian businesses could struggle to secure capital for expansion.
3. Australian Dollar Impact: In times of economic uncertainty, the Australian dollar typically weakens as investors flock to safe-haven currencies like the US dollar and Swiss franc. While a weaker AUD may benefit exporters, it could also increase costs for businesses reliant on imports and raise inflationary pressures for consumers.
4. Interest Rates and Inflation: If the US Federal Reserve cuts rates aggressively to counteract a recession, the Reserve Bank of Australia may face pressure to adjust its own monetary policy. While lower interest rates could ease borrowing costs for Australian businesses and homeowners, they could also fuel inflationary concerns.
5. Consumer and Business Confidence: If global economic sentiment turns pessimistic, Australian consumers may cut back on discretionary spending, affecting retail, tourism, and hospitality sectors. Businesses may delay hiring and investment decisions, contributing to a slower economic growth trajectory.

Nigel Green concludes: “The countdown to a US recession has begun, and economies worldwide must prepare for the knock-on effects. Australia, while resilient, will need to navigate the challenges ahead with strategic policy decisions to mitigate potential fallout.”

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