Westpac Market Outlook for April 2025

The recent challenges faced by global markets have been significant, especially in the realm of economics, with the past two weeks showcasing a momentous period. The issue of tariffs has taken center stage, sparked by US President Trump’s announcement of ‘reciprocal’ tariffs on April 2. This move marked a major escalation in the ongoing turbulence surrounding global trade policies that have been unsettling financial markets. The situation remains highly uncertain, swinging between retaliatory tariff increases between the US and China, a temporary halt on tariffs over 10% for other countries, and a hasty reversal on US tariffs for various electronic products. The US has sent mixed signals, oscillating between a hard stance on tariffs to stimulate domestic production and a willingness to engage in negotiations. The adverse market reaction, particularly the rise in US Treasury yields, prompted a response from US policymakers. This reaction may deter President Trump from further escalations, but the overall chaos persists, with a 90-day window for bilateral negotiations.

The unpredictability stemming from these developments has made economic forecasting incredibly challenging. The April report by Westpac outlines a baseline scenario, highlighting the potential impacts, assumptions, and key risks involved. The ongoing tariff dispute is viewed as self-inflicted harm that could push the US to the brink of recession, hinder the Federal Open Market Committee’s ability to provide adequate support due to inflation constraints, and dampen global growth, albeit to a lesser extent. Notably, China is expected to implement a robust policy response to meet its 5% growth target for 2025.

Australia, with limited direct exposure to US tariffs and China’s strategic response, faces a relatively minor shock that can be managed. However, the external environment remains precarious, necessitating vigilance in the face of potential challenges ahead. The Australian economy, which was on a path to recovery at the beginning of the year, now faces uncertainties that have led to a revised growth forecast of 1.9% in 2025. The Reserve Bank of Australia is anticipated to implement three additional rate cuts this year, though downside risks persist.

The volatility caused by tariffs has had a varied impact on commodities, with the exception of gold, while global foreign exchange markets have experienced turbulence as the US dollar has faltered. New Zealand, amidst a positive economic outlook, faces heightened risks due to global trade tensions. The United States, teetering on the edge of recession, grapples with inflation concerns that limit policy responses. China, enduring significant tariffs from the US, maintains a resilient growth outlook with potent policy tools at its disposal.

In Europe, fiscal strategies in Germany and the UK serve as lessons for Australia on maintaining fiscal flexibility to counter shocks. Japan, facing inflation challenges and trade negotiations with the US, must navigate carefully to sustain its economic progress. The road ahead for the global economy remains uncertain, demanding continuous monitoring and strategic foresight to mitigate potential risks.