Tariff turbulence comes amid signs of ‘strength’: Bendigo Bank

In its April economic update, Bendigo Bank has revealed there are set to be challenges and repercussions from the US trade tariffs amongst “key signs of strength.”

David Robertson, chief economist at Bendigo Bank, said the RBA had noted uncertainty around the impact of the tariffs as they would likely make setting the cash rate more complex.

“Australia is one of the least exposed to tariffs directly, given less than 5 per cent of our goods exports head to the US. So, it will be indirectly, via our major trading partners, that we are likely to be most impacted,” he said.

Robertson said it was yet to be determined whether global inflation would increase with tariffs or if the impact would only be felt by the US, based on the history of tariffs impacting consumers in the country enforcing them.

“Conversely, will global demand slow down sharply, meaning all the more need for RBA rate cuts? Recent forecasts from the RBA and the OECD do show slower growth ahead in the US and, to a lesser extent, the global economy, but not at this stage a slowdown for our major trading partners,” Robertson said.

“This will be a key variable for the rest of the year, and will depend on the degree to which countries retaliate to US tariffs, or perhaps seek more reliable trade partners elsewhere.”

Though uncertainty was the current theme noted by Robertson, key signs of current strength were also apparent, which included gold hitting a record trade price and residential property seeing a slight uptick.

“Amid all this uncertainty, volatility on financial markets is high, but the star performer on the markets has been the safe haven of gold, trading at a record high around US$3,150 an ounce, up 40 per cent in a year, and up 45 per cent in Australian dollar terms,” he said.

In March, residential property prices rebounded by 0.4 per cent, with capital cities being up by 0.5 per cent and 1.4 per cent in the regions.

In relation to the cash rate, the second expected on 20 May would be followed by a possible additional cut in August, which would likely then be the end of the rate-cutting cycle, according to Roberston.

This was attributed to the fact that the RBA would watch for signs of an increase in core inflation.

Robertson outlined the three factors that continued to suggest only a “shallow dip” for future interest rates: resilient markets, extreme overseas policy uncertainty and ongoing public spending at the state and federal level.

He also noted a key strength for Australia was its stronger debt position compared to what was originally forecasted coming out of the pandemic, yet improved productivity was crucial to allow for spending in the medium term.

“While last week’s federal budget contained few surprises, and the tax cuts announced were in response to bracket creep, it is clear that Australia now sits in a much stronger debt position than was forecast coming out of the pandemic.”

“We did move from surplus to deficit, although the deficit for FY25 was 1 per cent of GDP, followed by 1.5 per cent next financial year. Our debt profile remains sound in the short term (with gross debt to GDP peaking below 37 per cent), keeping our AAA credit rating secure.”