Deloitte has forecast Australia’s economy to grow by 2.2 per cent in 2025\/26, with headline inflation predicted to remain above four per cent for the remainder of the calendar year, prompting the RBA to raise interest rates one more time in August. The forecast points to the longest stretch of weak growth since the 1990s, reflecting the challenging economic environment facing the country. The combination of persistent inflation and modest growth presents a difficult policy challenge for the Reserve Bank as it seeks to balance the competing objectives of price stability and economic activity. Deloitte Access Economics partner Stephen Smith described the outlook as \u201ca prolonged period of sub\u2011par growth that is testing the resilience of households and businesses alike.\u201d<\/p>\n\n\n\n
The Deloitte analysis highlights the headwinds facing the Australian economy, including elevated inflation, geopolitical tensions and the ongoing impact of global supply chain disruptions. Despite these challenges, the economy has avoided recession, with unemployment remaining relatively low by historical standards at around 4.4 per cent. However, per capita GDP has gone backwards in two of the past five quarters and was flat in a third, underscoring the weakness in living standards growth. The outlook suggests that while the economy continues to expand, the pace of growth remains insufficient to generate meaningful improvements in per capita incomes, a trend that has significant political and social implications.<\/p>\n\n\n\n
Inflation expectations have shown some signs of moderating, with Australia’s expected inflation rate falling to 4.7 per cent in July, the lowest level since January 2026, according to a survey released by the Melbourne Institute. This decline offers some encouragement that price pressures may be easing, though inflation remains well above the RBA’s target band of 2-3 per cent. The central bank’s next interest rate meeting will be held on August 10-11, with markets closely watching for any indication of the policy direction. Governor Michele Bullock has previously signalled that the board will not hesitate to tighten further if the data warrants it, but the current mixed signals make the decision finely balanced.<\/p>\n\n\n\n\n\n\n\n
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.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
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.<\/p>\n","protected":false},"excerpt":{"rendered":"
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