Hopes for interest rate cuts, but SA economy at risk from Trump’s tariffs

Hopes that interest rates could begin to fall are injecting optimism into the SA economy, but Trump’s tariffs pose as a serious threat to the state’s farmers.

UniSA chair of economics Dr Susan Stone. Picture: UniSA

Easing cost of living pressures and hopes that interest rates could begin to fall as early as this month are injecting some optimism around the prospects for the South Australian economy in 2025, but the uncertain global trade environment triggered by new tariffs in the US loom as a major challenge for the state’s agricultural producers.

Lower than expected inflation figures released last week have most economists expecting an interest rate cut when the Reserve Bank meets later this month, in what would be the first move since November 2023.

William Buck SA managing partner Adrian Chugg said that while the subdued economic outlook had South Australian businesses tightening their belts, many were still looking for acquisition opportunities – a trend that was likely to continue as interest rates declined.

William Buck SA managing partner Adrian Chugg. Picture: Supplied by William Buck

“The year ahead will be a challenging one to navigate, perhaps one of toughest we’ve seen for some time,” he said.

“The cost of doing business has risen steadily over recent years and largely been passed on to the consumer. With households now under significant cost of living pressure and pulling back spending, it is more difficult for owners and operators to pass on these higher prices.

“We are also in discussions with clients seeking to grow through strategic acquisition. This may be by acquiring other companies to open up new markets or provide additional cross selling opportunities.

“Overall, businesses are approaching 2025 with a high degree of caution, a close eye on costs

and an appetite for acquisition.”

UniSA’s chair of economics Susan Stone said it was important for the state’s economy that businesses continued to invest in their operations.

“Overall, 2025 should be a year of recovery, with SA households and business benefitting from lower interest rates and improved market conditions,” she said.

“A key to growth in South Australia, for 2025 and beyond, is business investment. The potential for continued state spending in 2025 to squeeze out private investment can have long term implications for the productivity growth the state needs to see to sustain growing living standards, especially in the face of rising migration.”

While the low Australian dollar has benefitted exporters in recent years, President Donald Trump’s promise of new tariffs on Canada, Mexico and China poses as a major threat in the year ahead, particularly for the state’s agriculture sector.

Still recovering from the trade stand-off with China that saw tariffs slapped on Australian products including wine, barley, beef, and amid drought conditions across the state, primary producers could be dealt another blow by the additional trade barriers.

“The US accounts for a high percentage – recently around 40 per cent – of SA exports of beef and meat, and accounts for more than two thirds of our lead exports, and a not inconsequential amount of South Australian wine,” Dr Stone said.

“We may also face increasing competition from trade competitors into third markets. If other exporters lose access to the US market – say, for example, Canadian wheat – they will be looking to sell their goods in other markets – say, for example, to Indonesia who is currently buying more than 20 per cent of SA wheat.”

Originally published as Hopes for interest rate cuts, but SA economy at risk from Trump’s tariffs