The economic outlook remains highly uncertain, with geopolitical developments and global economic conditions posing significant risks. The Australian dollar is buying 69.83 US cents, down from 70 US cents on Thursday, reflecting the broader market sentiment. A weaker currency supports exporters but adds to imported inflation, complicating the RBA’s task. Deloitte’s forecast assumes that the RBA will deliver one final hike in August before holding steady through the remainder of the year, with a possible easing cycle commencing in early 2027 if inflation moderates as expected. However, the firm cautioned that the path is conditional on no further major external shocks.
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The government’s fiscal position also features in the outlook, with the budget returning to a modest surplus in 2025/26, supported by strong corporate tax receipts and reduced spending on pandemic-era supports. However, the surplus is projected to be short-lived as ageing-related spending pressures mount. Treasurer Chalmers has emphasised that the government’s focus is on investing in productivity-enhancing infrastructure and skills, rather than pursuing surplus for its own sake. Deloitte welcomed the government’s commitment to fiscal discipline, but noted that the pace of reform on the supply side needs to accelerate to lift the economy’s potential growth rate.
Looking ahead, Deloitte’s economists express cautious optimism that the worst of the current economic turbulence may be behind us, provided that inflation continues to ease and global conditions stabilise. They point to strong household balance sheets, albeit with growing inequality, and a robust labour market as factors that could support a pick-up in consumer spending once confidence returns. However, they warn that the prolonged period of weak growth has left many families feeling financially stretched, and that a sustained recovery will require a concerted effort from both policymakers and the private sector to drive innovation and investment. The coming months will be critical in determining whether Australia can break out of its low-growth trap.
