- Article
- Global Research
- General Research Insights
Australia in 2026
Reform is needed to unchain abundance
- Australia has many growth opportunities, but cumbersome regulations, the “crowding out” of private sector spending by...
- ...strong public sector expansion and strong growth in the cost base stand in the way of a much needed ramp up in business investment
- There are early positive signs in the IT sector, with AI expansion – but more reform is needed to lift Australia’s potential growth rate
Unchaining abundance
To a casual observer it can be hard to explain that Australia’s key economic problems are supply-constraints.
Australia’s weak productivity growth has put a low “speed limit” on the pace at which the economy can grow. Weak productivity growth is not a new challenge, but it is a clear and binding constraint.
Productivity growth is needed to keep lifting living standards
A key result is that inflation has picked up to an already excessive rate, despite only a modest economic upswing. As a result, we expect the RBA to raise its cash rate in 2026. The timing is uncertain, but our central case sees the RBA delivering one 25bp hike in 2026, most likely arriving in 3Q26, although we see a clear risk that the hike comes earlier than that. That being said, the key challenge for policymakers is not monetary policy – it is delivering fiscal and supply-side reform to support a lift in productivity growth.
“Pro-growth” reform, particularly which lowers the cost of doing business in Australia, is needed to encourage more business investment and innovation. A long list of reforms was discussed at the August 2025 economic summit, but more progress is needed on implementation. A slowdown in public spending would also help as government spending has been “crowding out” private sector activity by putting upward pressure on costs, interest rates, and redirecting workers.
As we see it, Australia has an abundance of growth opportunities, given its large resource endowment, strong ties to Asia, and tech and energy transition-related opportunities. In particular, faster progress is needed on making the energy transition and supporting the availability of low-cost energy supply along the way. For exports, a lower cost base would help support more investment in critical minerals. More should also be done to support a rebalancing of exports towards the fast-growing Indian and ASEAN economies. On the positive side, Australia’s IT sector is burgeoning, as the AI revolution arrives, but despite growing fast, the sector remains small and broader AI adoption lags. Fixing housing supply remains a perennial issue.
We expect growth of only 2.1% in 2026, but even this only modest expected growth, is a bit beyond what’s sustainable without a much-needed pick-up in productivity.
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The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Paul Bloxham and Jamie Culling
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