Quarterly financial update: July - September 2025

As this quarter draws to a close, Australia’s financial landscape reflects a delicate balancing act between global turbulence and domestic resilience. From inflation moderation to housing affordability challenges and stock market fluctuations, the quarter has been shaped by both internal policy decisions and external geopolitical forces.

Stock marketing performance: Steady amid global volatility

Australia’s S&P/ASX 200 Index posted modest gains this quarter, inching up 0.3% to close at 8,877.7 in mid-September. This performance mirrored Wall Street’s cautious optimism, driven by expectations of a U.S. Federal Reserve rate cut. While the U.S. S&P 500 surged 23% in 2024, Australia’s index returned a more subdued 11.2%, reflecting the country’s more conservative economic trajectory.

Investor sentiment was tempered by corporate shakeups—such as Super Retail Group’s abrupt CEO termination—and mixed earnings reports, including New Hope’s year-on-year earnings decline. Despite these hiccups, long-term returns remain within historical averages, suggesting underlying stability.

Housing market: Affordability still elusive

Australia’s housing market continues to grapple with affordability issues. While the rapid price escalation of previous years has slowed, interest rates remain elevated, keeping pressure on first-time buyers and lower-income households. The Reserve Bank of Australia (RBA) held the cash rate steady at 3.85% in July, signaling a cautious approach amid inflationary uncertainty.

Government efforts have pivoted toward increasing housing supply, with both federal and state initiatives aimed at easing market constraints. However, the impact of these policies will take time to materialize, and affordability remains a critical concern heading into Quarter 4.

Inflation and monetary policy: A turning point

Trimmed mean inflation for Q1 2025 printed at 2.9%, marking the first time since 2021 that inflation fell within the RBA’s target range. This milestone prompted a more dovish tone from the central bank, which now faces growing calls for rate cuts to stimulate growth. Market expectations suggest up to three rate cuts by year-end, although the RBA’s base case remains more conservative.

Global factors continue to influence inflation dynamics. A weaker Australian dollar—driven by U.S. dollar strength—has raised import prices, particularly for energy and consumer goods. Meanwhile, rising wages and persistent supply chain disruptions add to domestic cost pressures.

Trade tensions and climate disruptions

Australia’s economic decisions this quarter were heavily influenced by global developments. The U.S. ramped up tariffs, with rates peaking near 30% before settling in the mid-teens, sparking uncertainty across global trade networks. Although direct exposure to U.S. trade is limited (just 1% of GDP), indirect effects via China—Australia’s largest trading partner—are significant.