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Talking Economics: Small business outlook

CommBank’s Chief Economist discusses three key factors set to shape markets in 2025 and what it could mean for small businesses.

What’s happening with inflation and interest rates? In this Talking Economics update, Chief Economist Stephen Halmarick offers insights into the challenges, opportunities and potential impact on small businesses to help you prepare for the year ahead.


What are the key factors influencing small businesses in 2025?

The 2025 outlook is shaped by inflation, interest rates, and global geopolitical events. Here’s how these may play out for small businesses:

Inflation: With inflation expected to ease, small businesses could expect some relief in cost pressures, particularly on goods and materials. This could create opportunities to stabilise pricing and rebuild margins.

Interest Rates: Lower borrowing costs could help small businesses manage cash flow, refinance debt, or invest in growth opportunities. It may be worth planning ahead to take advantage of these potential rate reductions.

Global Geopolitical Events: Supply chain disruptions remain a concern, especially businesses reliant on imported goods. However, a more stable economic landscape could help reduce uncertainty and open new opportunities.

What are your thoughts on the RBA holding the cash rate last December? 

The decision to hold the cash rate steady was as expected, marking 2024 as the first year since 2017 without a shift in monetary policy. Notably, the RBA signalled growing confidence that inflation is on track to reach the 2-3% target. Softer than expected December quarter 2024 GDP and slower wage growth were highlighted, paving the way for interest rate cuts in 2025. We anticipate the cash rate could drop by 100 basis points, from 4.35% to 3.35% by year end.

What does this mean for small businesses?

For small businesses, the combination of lower inflation and reduced interest rates signals a more favourable environment. Stronger consumer spending projected economic growth of 2% in 2025, and easing cost pressures should help businesses focus on growth rather than survival. However, staying agile in the face of geopolitical risks will remain critical.

Finally, what key structural trends should small businesses keep in mind?

Looking at the bigger picture, five structural trends will likely influence small business over the coming years:

  1. Demography: With older Australians spending more, the economy is shifting toward services and products that cater to this demographic such as healthcare, financial planning, and leisure activities. This trend may present an opportunity for businesses to innovate and align offerings with consumer needs. 
  2. Debt: Rising global government debt levels may tighten access to funding making it more important than ever for small businesses to maintain financial health and explore alternative ways to finance growth. 
  3. Decarbonisation: The transition to net zero presents both challenges (higher compliance costs) and opportunities (demand for green products/services) for businesses to adapt and meet consumer expectations such as reducing waste or offering eco-friendly alternatives. 
  4. Decoupling from China: Reduced reliance on Chinese imports may encourage businesses to diversify their sourcing strategies which should create opportunities to strengthen relationships with local suppliers.  
  5. Digital: Technologies like Artificial Intelligence could help small businesses automate repetitive tasks, lower operating costs, and enhance customer experiences. Embracing these tools early could lead to competitive advantages.

These trends are likely to influence the environment in which small businesses operate, shaping both opportunities and challenges in 2025.

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To learn more about how CommBank can help you start, run and grow your business, visit our Small Business Hub.

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Things you should know 

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