The Australian Economy in 2025 - 2026:
Domestic Challenges in an Uncertain International Policy Environment
The Australian economy grew at a moderate pace in 2024–2025. Monetary policy gradually eased through 2025, with three rate cuts bringing the cash rate down to 3.6%. The labour market softened further from its post-pandemic state, but a resurgence of inflation in recent months places further monetary easing in doubt. Weak productivity growth remains a major domestic policy challenge. Geopolitical tensions, volatile tariff policies and the prospect of a stock market correction regarding the AI boom are downside risks heading into 2025/2026.
Key highlights:
- Growth prospects:
While the Australian economy is anticipated to grow in 2026, there is considerable uncertainty due, in large part, to geopolitical tensions and global economic volatility.
- Inflation challenge:
Inflation has proven sticky in recent years, posing a challenge for the RBA, particularly given its uncertainty over the degree of restrictiveness of its current policy stance.
- Downside risks:
Geopolitical tensions, volatile tariff policies overseas and the prospect of a large stock market correction regarding the AI boom present material downside risks to the economy.
- Longer-term issue:
Improving productivity growth is a major domestic policy issue for Australia, and addressing it is critical to lifting our living standards over the longer term.
This article was finalised in January 2026.
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