Wall Street stocks plummet: How it will impact Australia

Australia is already feeling the impact after global stock markets plunged following Donald Trump’s refusal to rule out a recession. Here’s what you need to know.

As global stock markets tumble following Donald Trump’s refusal to rule out a recession or further inflation amid his escalating trade war, Australia may also feel the effects.

Investors are unsettled by the turmoil surrounding tariffs and the Trump administration's seemingly blasé attitude, as policies targeting Mexico, Canada, and China continue to be implemented, postponed, and revised.

More than $35bn in value has been wiped from the Australian sharemarket on Tuesday morning following a shock recession comment from Mr Trump.

The London, Paris and Frankfurt stock markets all closed lower on Monday local time.

The European Union’s trade commissioner Maros Sefcovic complained that “the US administration does not seem to be engaging to make a deal” to avoid tariffs against the 27-nation bloc.

Stock markets around the world have fallen after US President Donald Trump refused to rule out a recession or more inflation amid his escalating international trade war. Picture: AP

President Trump over the weekend refused to rule out the US entering a recession this year, telling Fox News there will be a “period of transition, because what we’re doing is very big.”

In contrast, Commerce Secretary Howard Lutnick told NBC News: “There’s going to be no recession in America.”

The remark sparked a bloodbath on Wall St overnight, with the benchmark Dow Jones index shedding 890 points, or 2.08 per cent, to settle at 41,911.

The S and P 500, a basket of the 500 largest companies in America, lost 2.7 per cent, while the tech-heavy Nasdaq index fell to 4 per cent.

Here is everything you need to know about the world market and how it will affect Australia.

WHAT WILL HAPPEN TO AUSSIE STOCKS?

The ASX 200 has opened 1.3 per cent lower to 7862.80 points, after talks of a US recession sent Wall Street tumbling.

The Aussie dollar is trading around US62.77c Tuesday, 10am AEDT.

AMP chief economist and head of investment strategy Shane Oliver said: “Australian shares are likely to decline further, following US markets, as concerns about a potential US recession and its global ripple effects heighten fears of economic weakness in Australia.”

Industry Professor and Chief Economist at University of Technology Sydney, Tim Harcourt, added: “Tariffs are like putting rocks in your own harbour, so ultimately the markets know in long run tariffs are bad and are pricing than in accordingly.”

IS AUSTRALIA HEADED FOR RECESSION?

Professor Harcourt said the stocks plunging will mainly affect Australia if the trade war between the USA and China worsens, given our trade ties with China

Mr Oliver said: “Shares are often quite volatile and this doesn’t necessarily mean a recession is coming here.”

“But the risks have increased a bit.”

Wall Street stocks plummeted as investors fretted that uncertainty over President Donald Trump's tariff policy could tip the world's biggest economy into a recession. Picture: AFP

HOW BAD CAN IT GET IN AUSTRALIA?

Professor Harcourt said luckily for Australia, we don’t have the same trade with the USA like other countries such as Canada and Mexico.

“We are slightly buffered. But an all out trade war would hurt us as no one wins in a global trade war,” he said.

“Ironically China showed the dangers of trade wars when they put tariffs on Australia and hurt the Chinese economy.

“So China is as much to blame for tariffs as Trump.”

Mr Oliver added: “Shares are at high risk of further falls in the next month or so as uncertainty continues to build about the impact of Trump’s tariffs and DOGE cutbacks on the US and global economies.

“So far Australian shares have had a less than 10 per cent fall but a 15 per cent or so fall is possible.

“However, this should be seen as normal volatility in markets and prospects for lower interest rates locally and some settling in the US through the second half of the year as tariff uncertainty recedes should see shares rebound.

“At this stage we still see Australian economic growth picking up a bit this year with only a small rise in unemployment to around 4.5 per cent.”

WILL AUSSIE JOBS BE IMPACTED?

“One in five jobs depend on exports, and exporters pay 60 per cent higher wages than non-exporters on average,” Professor Harcourt said.

“So tariffs are bad for workers and consumers, especially if higher import prices mean higher inflation.”

Mr Oliver said the country’s biggest risk is that Trump’s trade war could weaken global growth,

“The main risk to Australia is if President Trump’s trade war leads to weaker global growth in particular in China leading to less demand for our exports and this could have a flow on to jobs and household incomes,” he said.

“Fortunately, recently growth has been picking up a bit in Australia and the RBA has plenty of potential to cut interest rates and support the local economy helping offset weakness coming from the US.”

WILL HOMEOWNERS AND PROPERTIES BE AFFECTED?

First National Real Estate’s Stewart Bunn said residential property markets in Australia are “primarily driven by local factors such as supply and demand dynamics, interest rates, and broader economic conditions.”

“Any short-term movements in international markets rarely translate into immediate changes in property values,” he said.

“While a more sustained downturn could eventually weaken the market’s confidence and momentum, the fundamentals supporting our domestic market remain robust.

“Volatility in US equities may influence global investor sentiment, but for the vast majority of Australian homeowners, the impact is likely to be limited.”

CAN SHARES AND SUPERANNUATION BE IMPACTED?

Professor Harcourt said: “Yes, trade wars can impact industry super portfolios in Australia, especially as super funds increasingly invest offshore.”

Originally published as Wall Street stocks plummet: How it will impact Australia