Woodbridge Insights - An Uphill Climb as Tariffs Arrive Late in the Economic Marathon

An Uphill Climb as Tariffs Arrive Late in the Economic Marathon

Shifting Market Sentiment Amid Rising Tariff Uncertainty

Market participants had largely priced in the avoidance of a recession and anticipated a steady improvement in asset values through 2025. Optimism around a resilient economy had taken hold, leaving limited room for negative surprises.

However, the introduction of new tariffs has triggered a sharp shift in sentiment. Equity markets have declined, bond yields have risen, and corporate credit spreads have widened—all signs of a significant repricing. This market reaction reflects a reassessment of growth expectations and renewed uncertainty around the inflation outlook.

Australia: Limited Direct Exposure to U.S. Tariffs

Australia is likely to see minimal direct impact from the latest U.S. tariff measures, given its relatively limited trade exposure to the American market. With a 10% tariff rate—among the lowest in the region—and exports to the U.S. accounting for just $15 billion, or around 1% of GDP, the immediate economic effect is expected to be contained.

However, the broader risk lies in a potential global growth slowdown, which could weigh on market sentiment and dampen overall economic activity.

Credit Landscape: A Shift in Focus

If credit stress continues to rise, banks and non-bank lenders with significant exposure to corporate debt may shift their focus from new loan origination to more stringent portfolio management.

At the same time, non-bank lenders without these constraints are expected to play a crucial role in bridging funding gaps, stepping in to provide capital amid the growing uncertainty.