Australian Politics

• Expect a federal election in April or early May. The timing will be between the WA State election in early March (which should see Labor retain government with Roger Cook remaining Premier), and the 24^th of May. In 2024, we saw incumbent governments in US, Britain, India, Japan and France all suffer swings against them fuelled by inflation driven voter discontent focused on the cost-of-living crisis (expensive groceries and higher energy costs) and unaffordable housing. 
• Labor is getting little credit for key policies like the $23bn tax cuts, cheaper childcare, medicines, energy bill rebates, extended parental leave, higher wages and free TAFE courses and the Coalition have been very effective in attacking the Prime Minister. A mere 1 per cent swing against labour means that it will lose majority whilst the coalition will need a 3.5 per cent swing to win. The polls are tight and not surprisingly, cost of living will be central to the campaign. 
• Labor will attack the cost of nuclear energy increasing household energy costs, whilst the coalition will focus on ‘can you afford another three years of Labor?’ An RBA cut to the cash rate before the election will have a big impact on the campaign.
• It is likely that the Coalition will gain a swing but it’s unclear whether it will be enough to take government. If they do there will be changes to energy, immigration and superannuation policies. A minority government is more likely, and the composition will have a big impact on policy, particularly on Medicare, housing and climate change.

 Australian economy

• Economic growth is expected to slowly recover. Household spending is expected to increase as real incomes rise in response to tax cuts and easing inflation. Growth in Australia’s major trading partners is expected to be moderate with a lot riding on China’s economic stimulus.
• Inflation is expected to reach 2.5 per cent by late in the 2025. Expect a 50 basis point cut to the cash rate anywhere between February and May.
• Labour market conditions will be tight and are expected to continue to ease gradually. The unemployment rate is expected to rise over the coming year as overall labour demand and supply comes roughly back into balance. Wages growth is expected to continue to slow gradually over this time.
• Housing affordability remains in crisis. House price growth slows by 4 per cent to 7 per cent with Perth prices growing strongest and Melbourne weakest. Expect suburbs like St Kilda East, Maroochydore, Enmore and Broome to be the hottest.  
• Population growth slows Population increase moves from 2.3 per cent to below 1.8 per cent with 350k net overseas migration.
• Expect budget deficits to increase with higher investments in Medicare, Veterans Affairs, Childcare, NDIS and Defence whilst the prices for key commodities like iron ore, coal and LNG weaker as China’s economic slowdown.
• The AUD could move to less than USD 60c or head towards 70c if the US Reserve turns dovish and the Chines stimulus is strong.

Retail

• China shifts from being the worlds manufacturing centre to the world’s marketplace. Shein becomes the largest pure-play apparel retailer on the planet with sales exceeding $50bn and Temu continues to expand globally reaching sales of $25bn.
• Amazon’s response to Temu, Hula, is released beyond beta offering third party products, largely sourced from China, with prices below $20 and slower delivery (1-2 weeks). Amazon is ‘the everything store’ but this will be the ‘online dollar store’.
• Amazon generates advertising revenue of $60bn and exceeds more cashflow than from retail operations with sales of more than $750 billion. Retailers accelerate their retail media networks led by Lowes, Macy’s and Home Depot.
• eBay declines at the hands of the rising Temu, Amazon and Facebook marketplace.
• TikTok combines late-night doomscrolling and late-night shopping in TikTok Shop (a massive marketplace bolted onto a giant entertainment platform) driving growth sales in fashion and beauty.
• Online retail gets to 20 per cent of US Total Retail Sales, 28 per cent in the UK and 16 per cent in Australia.
• Online grocery growth flattens post the pandemic step up. In the UK online represents 10 per cent of grocery sales, 8 per cent in Australia and 13 per cent in the US (Instacart is growing GMV to $35b and a quarter revenue comes from advertising).
• Beauty category is the strongest retail category fuelled by Gen Z demand fuelled by idealisation expected in social media.
• AI powered shopping focused search (like Perplexity) will start to challenge Google and show advantages against the OpenAI (and Anthropic) approach of a model that does everything. 
• We start to see more AI powered smart shopping trolleys in grocery retail allowing shoppers to scan items, viewing running totals, use accrued points and skip checkout lines.
• Taking pricing (higher gross margins) to drive sales will become less acceptable/defendable so retailers will need to acquire, retain or get customers to consume/purchase more. 

 Media

• Expect global advertising expenditure to surpass $1 trillion with over 80 per cent going to digital only platforms and more than two thirds going to three companies: Amazon, Google and Meta. 
• Digital only ad revenues grow high single digits, while traditional media owners see their advertising spend levels fall. Within digital only advertising, search revenues grow by high single digits, social media advertising grows by low double digits and digital video advertising increases by high single digits. Not surprisingly, search and social will be the key revenue growth areas for media owners next year. Retail media will be amongst the strongest performers.
• Television advertising revenues will fall between 5 per cent and 10 per cent, publishing revenues decrease by close to 10 per cent, whilst audio advertising revenues grows by 5 per cent fuelled by podcasts. We won’t have the Paris Olympics which attracted 17.4m viewers in 2024 for Channel 9, but we will have a federal election that will attract investment.
• AI enhancements are continuing to shift money within search towards social search and retail media. Social growth continues with TikTok's exponential growth beginning to plateau, but overall performance remains strong between Meta and other large players.
• Expect disruption and restructuring at the ABC, UK streaming platform DAZN’s acquisition of Foxtel to start a negotiation for the NRL and A-League rights, and streaming services to consolidate. 
• It is highly unlikely that TikTok will be banned and exit the US with the Trump Administration intervening to find a negotiated agreement.

 Marketing

• Personalisation, better customer experiences and automation will be at the heart of marketing strategies.
• CMOs and marketing leaders will increasingly face capability gaps given rapid technology changes. Marketing teams will build programs to enhance influencing skills, design thinking, brand fundamentals, maximising value from owned channels, generating customer insights, commercial acumen, understanding the technology stack including AI fluency, problem solving at scale, thinking through complexity, taking others with you and working across differences.
• Brands will start to rebalance realising that they have diverted too much of their budgets to performance lower funnel channels.
• Building reach to deliver penetration becomes more important with Meta and YouTube positioning as mass and targeted reach channels.
• AI will power hyper-personalisation, automate tasks, and generate creative content, transforming marketing strategies. AI and machine learning will enable hyper-targeted, context-aware campaigns that deliver individualised content, offers, and experiences in real-time, across every touchpoint.
• Content creation will be heavily augmented by AI, allowing marketers to quickly generate high-quality written, visual, and even video content. Generative AI tools will enable brands to produce content at scale with a higher level of customisation like automated blog posts, social media updates, and even personalised email newsletters will be generated by AI systems, while content strategies evolve to focus more on storytelling and emotional engagement.
• We will see improved tools on measurement and attribution, challenging existing theories.
• Leading social influencers with large audiences will become brands and we will see more Mr Beast-like owned products and cross-media content.
• Regulators and consumers will demand greater control over their data, forcing marketers to prioritise privacy-first strategies and transparent data practices.

Headwinds

• Equity markets are expensive and will be reactionary to any bad news particularly across the major technology stocks.
• If the Trump administration delivers on any of promises regarding tariffs, mass deportations and massive cut to government spending there could be major downward economic disruption.  
• Closer to home, we will endure weak but improving consumer confidence, housing affordability will remain in crisis, highly leveraged mortgagees and renters spending will remain constrained, insurance costs will rise double digits, slower population growth, we will have labour shortages, outbound travel spend, fewer inbound tourists, new global competitors and marketers can expect rising acquisition costs. 

Tailwinds

• Globally, the US election is behind us, and we can expect the Trump administration to be pro-markets and will extend the existing tax cuts, provide corporate tax cuts and will reduce regulation.
• Some kind of negotiated outcome in Ukraine will apply downward price pressure on food and edible oils as supply chains normalise.
• Closer to home, inflation is expected to moderate, we can expect interest rate cuts, we get the full year effects of the stage 3 tax cuts, unemployment remains low, wage inflation moderates a little and there is still population growth.
• The stronger GP margins businesses have earned hold, and AI starts to deliver productivity.

Wildcards

• There are several wild cards that could destabilise the global economy next year. These are possible but unlikely, but their consequences could be far reaching and, in some cases, catastrophic:
• China invades Taiwan.
• Russia escalates its attack on Ukraine and uses nuclear warheads to end the war and capture held territories.
• Israel strikes at Iran’s fledging nuclear capability and there is a regional escalation.
• We see another global pandemic.
• We see our first unpredictable unethical AI.
• Or a major cyber security hack impacts global financial system; or
• Taylor and Travis get engaged or break up (which inspires a new break-up album)!