Economic Intelligence Report: Australian Market Outlook Update - December 2025
Testing out a new thing here. Hope it is of some use. Very much still a proto-type. Will leave this open to the public for a bit :) Try and drum up some more interest in Alpha Insights.
Let me know if you found this useful! Thinking about doing this on a weekly schedule outside of reporting season.
Let me know if you found this useful! Thinking about doing this on a weekly schedule outside of reporting season.
Report Date: 9 December 2025
Coverage Period: 1–9 December 2025
Sources: PMV, EXP, BAP
Classification: Investment Research
1. Executive Summary
Core Call:
Australia has moved into a late-cycle phase with a 12-month recession probability of 40–50%.
Key Drivers (Mosaic View):
- Consumers: Middle-income households are trading down and delaying discretionary spend (PMV).
- Experiences: The experience economy buffer is intact but softening at the margin (EXP).
- Small Business & Households: Stress now visible in semi-defensive automotive aftermarket, as vehicle maintenance is deferred (BAP).
Why This Matters:
Weakness has migrated from “nice-to-have” goods into essential-adjacent categories and small-business cash flow – historically a high-signal pre-condition to labour market and credit deterioration.
Timing View (Indicative):
- Earliest plausible onset: Q3 2026
- Base case window: Q4 2026 – Q1 2027
- Latest plausible onset (with timely easing): H1 2027
2. Portfolio Stance – What to Do With This View
2.1 High-Level Positioning
- Reduce Cyclical Fragility
- Trim mid-market consumer discretionary and highly leveraged small caps.
- Avoid names heavily reliant on small-business and lower/mid-income households without pricing power.
- Tilt to Quality & Defensives
- Favour healthcare, select utilities, and high-quality large caps with strong balance sheets and recurring revenue.
- Within financials, prefer major banks over niche or high-risk consumer/SME lenders.
- Be Selective in Cyclicals
- Keep or initiate watchlists in retail, industrials, quality financials for post-selloff entry once recession is substantially priced in and the policy path is clearer.
- Maintain Dry Powder
- Hold capacity to add risk into weakness, not chase late-cycle strength.
2.2 Sector Lens (Condensed)
| Sector | Risk Level | Stance |
|---|---|---|
| Consumer Discretionary | High | Reduce mid-market; favour value/essential leaders |
| Small-Cap Industrials | High | Avoid weak balance sheets; favour diversified B2G/B2C |
| Financials (Retail/SME) | Med–High | Prefer majors; cautious on SME / sub-prime exposures |
| Tourism & Leisure | Medium | Prefer inbound/ diversified operators with flexible cost |
| Healthcare | Low–Med | Core defensive ballast |
| Resources | Indirect | Driven more by China/global dynamics |
| Utilities | Defensive | Use as part of defensive allocation |
| REITs | Mixed | Cautious retail; more constructive on industrial/logistics |
I wouldn't take on board the suggestion on banks at face value (very much still negative on the banks), but also, don't blame this report for "bad analysis" given that these "stances" were written in isolation of the broader theme.
What is actually useful though, on the Bank-related commentary. "Cautious on SME". This means, time to start considering the risk-side for NAB.
What is actually useful though, on the Bank-related commentary. "Cautious on SME". This means, time to start considering the risk-side for NAB.
3. Monitoring & Triggers (Risk Management)
A lot of this "timing" calls are just fluff in my opinion. Don't pay too much attention to them, just a nice to read, maybe get some ideas from it, and only to be taken VERY lightly.
3.1 Indicator Dashboard
| Indicator | Current Read-Through | Bearish Trigger to Watch | Frequency |
|---|---|---|---|
| NAB Business Confidence | Soft / fragile | Sustained sub-0 readings | Monthly |
| ANZ Job Ads | Flat to soft | >10% YoY decline | Monthly |
| ABS Retail Trade (Per Capita) | Weak | Multi-quarter contraction | Monthly |
| Westpac Consumer Sentiment | Depressed | New lows vs prior 12–18 months | Monthly |
| RBA Credit Growth | Slowing | Flat/negative household credit growth | Monthly |
3.2 Event Catalysts (Near Term)
- Dec 2025–Jan 2026: Christmas / holiday trading updates (electronics, department stores, general retail).
- Feb 2026 Reporting Season:
- Credit quality commentary from banks and non-bank lenders.
- Trading updates from SME-exposed industrials and service providers.
- RBA meetings (Q1–Q2 2026):
- Shift from “on hold” to explicit easing bias or first cut.
3.3 “What Would Change the View?”
To Raise Recession Odds (>50%; Base Case Recession):
- Feb 2026 shows clear deterioration in bank credit quality: arrears, hardship, SME impairments.
- Sharp fall in job ads plus further business confidence weakness, with unemployment starting to rise.
- Negative trading updates from traditionally defensive categories (e.g., supermarkets, insurers).
To Lower Recession Odds (Back Toward 20–30%):
- Subsequent updates from PMV/EXP/BAP-type names show stabilisation or recovery.
- Evidence of real income support (tax, energy price relief, wage gains) feeding through to spending.
- Pre-emptive RBA easing that stabilises confidence before the labour market cracks.
To Push the Timeline Out (Risk Shifts into 2027+):
- Stronger-than-expected inbound tourism and migration, supporting demand and labour markets.
- China/Asia growth surprise that boosts exports, commodity prices and sentiment.
4. Evidence Base – Company Intelligence
4.1 Premier Investments (PMV) – Consumer Discretionary Retail
Analysis Date: 5 December 2025
Key Observations
- Clear bifurcation: value/discount brands holding, mid-market apparel under pressure.
- Higher promotional intensity and margin pressure despite disciplined cost management.
- International/UK operations more resilient than domestic Australian retail.
Macro Signal
Patterns are consistent with middle-income households trading down and delaying discretionary purchases, aligning with weak sentiment and flat/negative per-capita retail volumes. Historically, this behaviour leads broader consumption downturns by ~2–3 quarters.
4.2 Experience Co (EXP) – Tourism & Experiences
Analysis Date: 6 December 2025
Key Observations
- Domestic adventure tourism volumes resilient but no longer accelerating.
- Inbound tourism recovery is a meaningful offset for some locations.
- Fixed-cost leverage means earnings are sensitive to any slip in volumes or forward bookings.
Macro Signal
The “experiences before goods” pattern remains: consumers cut goods first, then services. Early signs in forward bookings and regional variability point to a finite buffer. In past cycles, experience spend typically softens 6–9 months after retail.
Give the scrutiny on corporate travel recently, both with 1) the Corporate Travel (ASX:CTD)'s now-evolving accounting scandal, and 2) the government-related expenditures (lol... lacking common sense, or just outright brazen - who knows.), I might do a travel sector report next :) having got HLO EXP WJL SKO and FLT recently completed. However, it goes without saying that, I think travel segment is done for the moment, and I would start treating any commentary on BOTH the corporate and retail divisions of any travel company, with a fair amount of pessimism, and cynicism if anyone tries telling you otherwise.
Also on the CTD scandal - i have tried to look for prior reports to see if our analysis process could identify any red flags prior to a pause in trading of shares (August). I only have a report from February 2025 that was very much, utilising a very basic (and quite wrong) process (called CTD a buy lol). The most updated note we have on CTD has provided a valuation of $4 on the company. I will publish that note shortly.. but just to be clear, this report was after-the-fact.
Also on the CTD scandal - i have tried to look for prior reports to see if our analysis process could identify any red flags prior to a pause in trading of shares (August). I only have a report from February 2025 that was very much, utilising a very basic (and quite wrong) process (called CTD a buy lol). The most updated note we have on CTD has provided a valuation of $4 on the company. I will publish that note shortly.. but just to be clear, this report was after-the-fact.
4.3 Bapcor (BAP) – Automotive Aftermarket
Analysis Date: 9 December 2025
Key Observations
- December trading update and guidance revision show weaker-than-expected trading.
- Trade channel (mechanics, workshops) seeing pressure as small businesses and households defer non-critical maintenance.
- DIY / retail channel also soft, pointing to household cash-flow stress.
- Fleet/corporate demand relatively stable – highlighting stress is consumer and small-business centric.
Macro Signal – Highest Conviction Warning
The automotive aftermarket is usually defensive. When it cracks, it is a high-signal indicator of household and SME strain. BAP’s weakness suggests the cycle has advanced from:
- Discretionary goods →
- Experiences (early softening) →
- Essential-adjacent spend (vehicle maintenance)
In prior cycles, similar patterns preceded employment and credit quality deterioration, not followed them.
Among the three, BAP is the clearest “canary” that the slowdown is transitioning into genuine recession risk.
Our analysis on BAP concludes with an "undervalued, therefore positive for investment returns" rationale.
While I don't necessarily dispute the model's conclusion, given its point in time perspective, this is where I would be engaging information from other facets like my perspective on the economic outlook.
Pretty straight forward process, for example.
BAP screens attractive on Alpha Insights.
I'm anticipating an economic recession (if not for public government spending, we should be in one by now) in the near-term.
BAP is defensive with automotives etc. True.
But if you were to judge their revenue mix, having been more "discretionary" than "staples" since COVID, a lot of those discretionary-driven revenue will likely pullback on a consumer recession.
Plus, they have a transformation gig going as well. Like so many other companies out there...
So...... what then?
Well, for me it just goes into the too hard basket. I chuck it in there, and move onto the next company.
How this process might differ, in some respect, would also be on timing. If we were already in a consumer recession environment, if BAP already downgraded several times prior (remember the thing about how downgrades don't come in one's?), I might have taken a different approach. But, for me anyways, this time it's just clear cut we just passed the peak of the rollercoaster's ascension. Whether the timing is right to the very second, doesn't matter. All that matters is having confidence in which phase you are in.
well that was longer than i anticipated... moving on.
While I don't necessarily dispute the model's conclusion, given its point in time perspective, this is where I would be engaging information from other facets like my perspective on the economic outlook.
Pretty straight forward process, for example.
BAP screens attractive on Alpha Insights.
I'm anticipating an economic recession (if not for public government spending, we should be in one by now) in the near-term.
BAP is defensive with automotives etc. True.
But if you were to judge their revenue mix, having been more "discretionary" than "staples" since COVID, a lot of those discretionary-driven revenue will likely pullback on a consumer recession.
Plus, they have a transformation gig going as well. Like so many other companies out there...
So...... what then?
Well, for me it just goes into the too hard basket. I chuck it in there, and move onto the next company.
How this process might differ, in some respect, would also be on timing. If we were already in a consumer recession environment, if BAP already downgraded several times prior (remember the thing about how downgrades don't come in one's?), I might have taken a different approach. But, for me anyways, this time it's just clear cut we just passed the peak of the rollercoaster's ascension. Whether the timing is right to the very second, doesn't matter. All that matters is having confidence in which phase you are in.
well that was longer than i anticipated... moving on.
5. Macro Interpretation & Transmission Path
5.1 From Micro to Macro – Upgraded View
| Indicator | Previous View (Pre-Dec) | Updated View (Post PMV/EXP/BAP) | Confidence |
|---|---|---|---|
| Consumer Spending | Slowing but stable | Deterioration accelerating | High |
| Small Business Health | Moderate stress | Elevated distress signals emerging | High |
| Employment (Leading Signs) | Gradual softening | Risk of step-change if SMEs weaken | Medium |
| Recession Probability (12m) | 25–30% | 40–50% | Medium |
Why the Upgrade?
- Cross-sector convergence: Retail, tourism and auto aftermarket are all pointing in the same direction.
- Weakness is now visible in semi-essential spend and small business volumes, not just “luxury” categories.
- These patterns, combined with already stretched household balance sheets and limited remaining savings buffers, fit a late-cycle, pre-recession profile.
5.2 Transmission Mechanism (Stylised)
Discretionary Goods Weakness (PMV)
↓
Experience Spend Softening (EXP – early signs)
↓
Small Business / Trade Stress (BAP – now visible)
↓
Employment Market Deterioration
↓
Credit Quality Weakens → Banking Sector Impact
The system is now sitting between stages 2–3, with the next critical observation point being labour market and credit data around/after Feb 2026.
6. Final Summary
- The Australian economy has progressed decisively into late-cycle, with a 40–50% recession probability over the next 12 months.
- The most informative micro signal is the deterioration in BAP’s automotive aftermarket, indicating stress in categories that usually hold up until cash-flow pressure is acute.
- PMV, EXP and BAP together show that the rate-hike transmission is no longer theoretical – it is visible in spending patterns and small-business behaviour.
- Portfolio strategy should focus on reducing cyclical fragility, tilting to quality defensives, and preparing to add risk when recession is fully priced and the policy response is clearer.
Disclaimer:
This report synthesises company-specific analysis into macroeconomic observations and is provided for informational purposes only. It does not constitute financial advice or a recommendation to buy or sell any security. Investors should conduct independent research and consult qualified advisors before making investment decisions.
Generated from: PMV (5 Dec), EXP (6 Dec), BAP (9 Dec 2025).