NAB boss believes Australia has passed the hardest points

NAB says the worst of the economic cycle could be behind us, predicting a number of rate cuts in 2025 to help households and business alike.

One of Australia’s largest banks says cost of living pressures are likely to ease throughout 2025, with expected rate cuts to have a “significant impact on the psyche of consumers and business”.

Australia’s third largest bank has come out with a prediction for three interest rate cuts in 2025, highlighting things will get easier for households.

In his economic outlook, NAB chief executive Andrew Irvine says rate cuts and tax changes would help ease the cost of living pressures in the new year.

“It’s my view that we’re at the hardest point of the economic cycle right now and things will get better from here,” Mr Irvine said.

NAB is predicting a stronger economy in 2025. Picture: NewsWire / Gaye Gerard

“We’re seeing tax cuts for Australians that most are actually saving, so deposit balances are increasing in the sector, which I think is promising.

“And we do expect interest rates to start to fall by the middle of this year. We’re then expecting two further cuts during the year.”

Commonwealth Bank is the most optimistic of the big four banks, predicting Australia’s inflation rate to be lower than the RBA’s predictions and for rate cuts to start in February.

The rest of the big four banks – NAB, ANZ and Westpac – predict Australians will have to wait until at least May for that relief.

NAB’s chief executive said Aussies would soon be breathing a sigh of relief as rate cuts come through, marking the end of two years of rate rises and economic challenges.

“My prediction is that over the course of the year, it’s going to be slow and measured improvement,” Mr Irvine said.

“And when we get that first rate cut, I think it’s going to have a significant impact on the psyche of consumers, as well as business people that is likely far greater than the actual impact it will have on cashflow.

“I think that at the back end of this year you’ll start to see good growth.”

National Australia Bank Group chief executive Andrew Irvine expects the economy to improve during 2025. Picture: NewsWire / Martin Ollman

But Mr Irvine said pressure on households might remain for a few months to come.

“People are juggling, people are budgeting and they’re budgeting hard to make ends meet every single month,” he said.

“The big thing for us is employment and the strong employment market conditions throughout Australia and the minimal amount of unemployment.

“Typically, in my experience, as long as people have jobs and there is income coming into the household, most bills, most mortgage payments are met, and the worst doesn’t happen.

Signs of life for Aussie businesses

NAB is also predicting improving conditions for businesses with the lower cash rate also easing the pressures on company owners.

Citing figures from the NAB business survey, Mr Irvine said business confidence was waning at the end of last year despite conditions holding up okay.

“Businesses are confidence players and frankly consumers also, and I just think it will create a positive environment for spending and for employment as well,” Mr Irvine said.

Spurred on by rate reductions and stage three tax cuts, NAB suggests businesses have a lot to be optimistic for in 2025. Picture: NewsWire/ Monique Harmer

Mr Irvine noted that investment was often pinned to confidence and too often the economy was talked down, when in fact there were plenty of reasons for optimism.

“Optimism for what’s going to happen in our economy this year is important,” he said.

“SMEs (small medium enterprises) are the heartbeat of our economy. Thankfully, in many sectors, SMEs continue to be doing well.

“Regionally, businesses in Queensland, WA, NT are doing well.

Businesses that support the resources sector, energy, agriculture, defence – these are large tracts of our economy that are doing well.

“At the same time, businesses that focus on value and have really good value lines are trading really well.

Trump warning

Despite being overall bullish on the Australian economy, Mr Irvine warned of the economic headwinds including the new US president.

In the run up to the election, President-elect Donald Trump promised major tariffs on economies including China, Canada and Mexico, and sweeping tax reforms he says will help grow the American economy.

NAB says a number of Trump policies could be bad for global growth. Picture: NewsWire/Bianca De Marchi

According to Mr Irvine, Australia is not alone in seeing a global economic slowdown. Heading into 2025, many eyes are on the US as a new president is sworn in later this month.

“We will have to see how Mr Trump’s comments about increasing tariffs play out over time, but it’s clear no one wins in a trade war,” he said.

“What gives me optimism is that over the past four or five years, many Australian businesses have diversified their markets.

“We have seen terrific diversification not just in commodities and agriculture but across all sectors. That puts Australia in a stronger relative position.

“This is testament to the hard work and achievements of many small and medium businesses.

“We’ve got good products and services to sell and I continue to be optimistic.”

Originally published as NAB boss believes Australia has passed the hardest points