Three economic surprises in July caught everyone off guard. From RBA shock decisions to unemployment jumps, here’s what flipped the outlook.
What’s happening: Three major economic surprises in July have forced economists and policymakers to completely recalibrate their forecasts: the RBA’s unexpected decision to hold rates steady, unemployment jumping from 4.1% to 4.3% in a single month, and US tariff deals locking in at higher-than-expected levels.
Why this matters: These developments have flipped the economic script for Australian businesses, creating a complex environment where temporary policy support provides near-term stability but underlying global pressures threaten elevated business failure rates over the next six to twelve months.
July was supposed to be predictable. Instead, it delivered three economic curveballs that caught everyone from market analysts to central bankers completely off guard.
The month that economists thought they had mapped out instead became a masterclass in why economic forecasting remains as much art as science. Each surprise on its own would have been significant, but together they’ve fundamentally altered the outlook for Australian businesses heading into the final months of 2025.
Surprise one: The rate hold
The first shock came from an institution that prides itself on telegraphing its moves well in advance. The Reserve Bank’s decision to hold interest rates steady in July caught absolutely everyone off guard.
Markets had priced in another cut with near certainty. Economists were unanimous in their expectations. Even the betting markets were convinced. Then came the 6-3 vote to maintain rates, with the central bank citing the need to await June quarter inflation data before proceeding with further easing.
The decision blindsided analysts who had grown accustomed to the RBA’s previous pattern of cuts in February and May. But the central bank’s caution proved justified when subsequent inflation figures showed quarterly underlying inflation running at 0.6% quarter-on-quarter and 2.7% year-on-year, exactly in line with RBA forecasts.
This data gave policymakers the confidence they needed to move forward. CreditorWatch now expects the RBA Board to vote unanimously for an interest rate cut at the August meeting, with the decision to be announced at 2:30pm on August 12th.
The inflation data showed the quarterly Trimmed Mean tracking back towards the midpoint of the RBA’s 2-3% target band, a “pleasant surprise” according to CreditorWatch analysis, particularly given that the central bank had unofficially revised up its forecasts based on concerning April and May monthly readings.
Surprise two: Unemployment jumps
Just when economists thought they had the labour market figured out, June delivered the second curveball. The unemployment rate didn’t just tick up, it leaped from 4.1% to 4.3% in a single month.
To put this in perspective, that jump achieved the RBA’s forecast for the end of 2025 immediately. It marked a dramatic departure from the stability that had characterised Australia’s labour market over the previous year, catching forecasters who had predicted gradual deterioration rather than sudden shifts.
The unemployment spike provided another compelling reason for the RBA’s cautious approach in July, as policymakers suddenly found themselves grappling with conflicting signals about the economy’s direction. Job openings in the US, often seen as a leading indicator for global trends, have declined around 3% since initial tariff announcements, suggesting broader labour market pressures may be building across developed economies.
Adding to the complexity, this labour market deterioration coincided with more positive business sentiment data. The NAB Business Survey showed firms reporting a sharp bounce back in business conditions during June, after previously reporting weakening conditions throughout earlier months.
Retail and manufacturing businesses led this improvement, likely reflecting discounting strategies that drove stronger consumer spending despite ongoing cost-of-living pressures. However, whether this improvement can be sustained amid global economic headwinds remains the key question facing business planners.
Surprise three: Tariff reality
The third surprise came from across the Pacific, where the finalisation of US trade deals with the European Union and Japan delivered tariff rates of 15-20% that exceeded many economists’ expectations.
While these levels were lower than the initial 25% “Liberation Day” proposals announced in April, they still represent a substantial increase from previous trade arrangements. What caught observers off guard wasn’t just the level, but how readily international partners accepted these terms.
Markets initially reacted calmly to the news, but CreditorWatch warns this sanguine response may be misplaced given the likely impact on global economic growth.
“This level of tariffs is likely to eventually bring about slower US and global economic growth and higher unemployment, all other things being equal, as tariffs feed into higher goods prices in the US,” the analysis notes. While President Trump has extracted various investment and defence spending commitments to offset some impacts, the fundamental economic pressure remains.
The flow-on effects to Australia are expected to materialise gradually, as higher US costs and reduced global trade volumes impact demand for Australian exports and create supply chain disruptions across multiple industries. This represents perhaps the most significant long-term challenge of the three July surprises.
What happens next
Despite these mounting uncertainties, one area has shown unexpected resilience. Business failure rates have stabilised at elevated levels rather than continuing to deteriorate, with CreditorWatch’s analysis showing insolvencies plateauing through June.
This stability is attributed primarily to the beneficial effects of mid-2024 income tax cuts and ongoing cost-of-living support provided by state and federal governments. These measures appear to have provided crucial breathing room for businesses and consumers struggling with elevated costs and uncertain trading conditions.
However, CreditorWatch cautions against interpreting this plateau as a sign of fundamental improvement. The interest rate reductions implemented in February and May are not expected to provide significant support yet, given the typical lag between policy changes and real economic impacts.
Looking ahead, CreditorWatch expects insolvencies to remain “relatively stable at elevated levels over the next six to twelve months rather than improve.” The assessment carries a warning that risks remain of increased business failures “as some of these global forces find their way through into the Australian economy.”
The three July surprises have created a complex economic environment where temporary policy support measures are providing near-term stability, but underlying structural pressures from global trade tensions, persistent inflation concerns, and labour market softness continue to create risks for Australian businesses.
For business owners and investors, the message is clear: while immediate relief may be coming through lower interest rates and continued government support, the broader economic environment remains challenging. The next six to twelve months will test whether Australia can maintain economic stability while navigating increasingly complex global economic pressures.
The plateau in insolvencies, while welcome, represents a period of elevated business stress rather than genuine recovery. Companies should use this breathing space to strengthen their financial positions and prepare for what could be a more challenging period ahead as the full impact of July’s three surprises continues to unfold.
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