Interest rate relief ahead but trade tensions pose challenges for ag

Speaking at the recent Tractor and Machinery Association of Australia (TMA) Annual Conference, Westpac senior economist, Justin Smirk, painted a cautiously optimistic picture for the agriculture industry, saying while local financial pressures will ease, global economic headwinds may pose significant challenges for the sector.

Smirk told delegates to expect up to four more interest rate cuts—two this year and two next—bringing the cash rate down to 2.85 per cent, as inflation continues to moderate.

“We have a consumer-led stagnation here in the country and the overall wider economy is on track for a soft landing,” Smirk said.

Lower interest rates mean lower loan repayments and borrowing costs, which could encourage farmers previously cautious with their spending to start investing again.

While domestic rate relief is welcome, broader global developments may cast a cloud over the sector.

Trade tariffs are now a permanent feature of the global economy, Smirk said. The question is simply to what extent.

“The Trump administration will push on ahead with tariffs which will change the way the world trades, but it probably won't do a lot to change where manufacturing is,” he said.

As of publication, the U.S. has imposed a 10 per cent baseline tariff on most imported goods from Australia, including agricultural products like beef.

Smirk said how China responds to imposed tariffs will be critical for Australia.

“With the U.S. and Europe putting barriers up to Chinese exports, where do you think they will go? They’ll come here with their goods—clothing, footwear, motor vehicles, white goods—so do expect ongoing price competition.

“This is one of the reasons inflation in this country is continuing to moderate and why we can be confident the RBA is going to cut rates further.”

While global tariff tensions may seem concerning, Smirk downplayed fears of lasting damage.

“For all the claims around these tariff negotiations, ultimately they'll settle at a level that is symbolic. Get used to the idea that we've moved away from zero tariffs around the world. Get used to the idea of the U.S. now having the highest tariff rates we've seen since the 1930s,” he said.

“This is all going to stay, but it's not the kind of shock that people initially feared.”

Mixed weather across the country—dry conditions in the southeast and flooding elsewhere—is leading to a varied outlook.

“We are transitioning from a couple of good seasons into a couple of more average seasons,” Smirk said.

“In terms of overall production around the country, it's going to be less than last year, but not terrible. Real volumes are set to fall and probably likely be flat.”

Smirk added input pressures such as rising fertiliser prices and ongoing labour shortages will continue to weigh on the sector.

“What I'm going to suggest, even though we're seeing a rising unemployment rate, is that labour supply will remain tight, particularly in rural sectors.”

Despite these challenges, agriculture continues to outperform the broader economy in terms of productivity, Smirk said.

“There is more work to do with how we lift the output and everything that is discussed today (at the conference) is becoming increasingly important. It’s how we survive and is the way of the future.”

Held under the theme Are We Future Ready?, the 2025 TMA Annual Conference explored key topics including AI (Artificial Intelligence), automation and data, and their role in advancing Australian agriculture.

Smirk said the adoption of new technology is vital to lifting productivity, and recent progress is encouraging.