Is a global recession on the horizon? Here’s how Australians can best prepare their finances

Australians have weathered a raft of economic shocks in recent years – from a pandemic to surging inflation and rapid rate hikes – and newly imposed US tariffs may cause further economic harm, potentially tipping the world economy into a global trade war.

World markets are experiencing upheaval as a result of recent trade policies enacted by the United States. Over the weekend, the US implemented a 10% baseline tariff on imports from numerous countries, with higher rates targeting nations such as China and the European Union. These measures have led to widespread market volatility and rising fears of a global recession.

Rates dropped, confidence rose – but now what?

Until recently, economic signs pointed to a soft post-pandemic landing for Australia. Inflation was moderating, the RBA had made its first cut to the cash rate in four years, and financial markets were pricing in smoother conditions ahead.

Rising tensions between the US and China have cast doubt on this optimism. With China as Australia’s largest export market, any escalation in tariffs could hit GDP, exports, and jobs. While the outcome is uncertain, Australians may be wise to brace for a potential recession, especially if consumer confidence and global investment falter.

Could there be a silver lining for Australia?

While the economic risks tied to a global tariff trade war are significant, there are a few potential upsides for Australia amid the global shake-up.

• A renewed push for a free trade agreement with the EU: One of the more promising developments is the possible revival of a long-stalled free trade agreement between Australia and the European Union. As the US imposes new trade barriers, the EU and other regions may look to diversify their exports – potentially opening more global markets to Australia and driving down the cost of imports.
• Interest rate relief for mortgage holders: Another possible benefit is the likelihood of further rate cuts. If inflation continues to ease and consumer confidence falters, there’s potential for earlier and deeper interest rate reductions than previously expected. For homeowners, that could translate into lower monthly mortgage repayments later this year.

Stay proactive, not reactive

Australia isn’t in recession – yet. But as uncertainty rises, now is a good time to act. The combination of shifting monetary policy, a cost-of-living crisis, fragile global supply chains, and potential US-China conflict could tip the scales and, at the very least, slow down global growth.

While policymakers watch the horizon, households can take action today: compare your financial commitments, cut unnecessary costs, and strengthen your financial safety net. In uncertain times, an actionable attitude could be your best defence.

Recession-proof your finances: here’s how

Here are several practical strategies to consider if you're looking to shore up your finances:

• Build your cash reserves: Economic slowdowns often bring job losses or reduced hours. Now is the time to boost your emergency fund. If you don’t know what your current savings rate is, it’s worth comparing savings accounts to maximise your returns while you still can.
• Make the most of rate cuts: The RBA is expected to continue cutting the cash rate this year – possibly sooner and stronger than expected if global growth slows sharply. If you’re on a variable home loan, this could reduce your repayments, but it also means competition between lenders may heat up. It’s a good time to compare loans and consider refinancing.
• Reduce high-cost debt: Credit card and personal loan rates remain elevated. If a recession hits, keeping these under control will be critical. Look at switching to a low-rate credit card or a balance transfer card to minimise interest costs and focus on paying down balances.
• Review your insurance: Financial stress often leads people to cancel or downgrade their cover, but recessions can increase the need for support. Make sure your income protection, home insurance, and car insurance still meet your needs and budget. Comparing insurance policies can help you find better value without compromising on essential protection.
• Secure your essentials: Whether it’s rent, groceries or energy bills, locking in competitive deals on your everyday expenses can provide some breathing room. That includes term deposits, and strategies like laddering, if you’re seeking a low-risk place to park your cash.