Australian Outlook

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Growth

RBA rate hikes and higher fuel prices due to the Middle East conflict will weigh on the Australian economy
Households remain supported by solid labour market conditions, ongoing population growth and modest tax cuts. Savings buffers will help consumers absorb higher prices and mortgage rates that will dampen real income growth
Higher capex on AI & data centres and renewable energy & storage will help cushion weaker business investment across industries most heavily impacted by the rise in diesel prices
While the Iran conflict presents a downside risk to growth, higher prices for Australia’s LNG exports will help to soften the impact

After slowing meaningfully since 2023, inflation picked up sharply in the second half of 2025, with headline inflation rising from 2.1% in the June quarter to 3.6% in the December quarter
While the move partly reflects expiring energy subsidies, underlying inflation also lifted
The recent momentum in underlying inflation combined with higher energy prices from the Iran war will see inflation remain above the RBA’s 2-3% target range over 2026

Following the lift in inflation in late 2025, the RBA raised the cash rate by 25bps in February 2026 and again in March as developments in the Middle East caused a further rise in inflation risks
QIC expect the RBA to raise rates by a further 25bps in May, taking the cash rate to 4.35%
This is expected to be the peak in cash rates as a slowdown in growth reduces labour market tightness and puts a brake on further RBA hikes

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