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Australian Outlook

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Growth

  • The Australian economy is not immune to global developments but is well-positioned to outperform most of its developed economy peers.
  • The economy has gained momentum over the last year with tax cuts, monetary policy easing and lower inflation supporting real incomes and spending. However, consumers remain price-sensitive and cautious, increasing savings and keeping a lid on the pace of recovery this year.
  • Headwinds from the global economy will weigh on the Australian economy this year, keeping business investment and exports subdued. As trade tensions stabilise into 2026, economic growth will accelerate toward trend.

Inflation

  • Inflation has slowed significantly since its peak in 2022, with underlying inflation falling to within the RBA’s target band as wages and goods prices eased.
  • While it has slowed, services inflation currently remains too high as weak productivity has kept unit labour cost growth elevated. A modest recovery in productivity will reduce unit labour cost growth and services inflation in the year ahead. Australia is also benefitting from lower imported goods prices as Asia diverts products away from the US.
  • Underlying inflation should remain around current levels until the middle of 2026, when it should ease toward the midpoint of the RBA’s target band.
     

Monetary policy

  • The RBA has reduced the cash rate by 75bps this year as inflation slowed.
  • We expect one more 25bp rate cut to 3.35% in early 2026 as inflation shifts lower and the recovery underway in Australia stalls later this year.
  • The easing cycle will take rates into mildly expansionary territory.

 

Australian Outlook highlights:

 

A modest cyclical upswing is underway in Australia, led by consumer spending

The global trade war is weighing on the domestic recovery

 

Australia - Real GDP growthSource: LSEG, QIC; Note: Red columns denotes QIC forecasts

 

Trimmed mean inflation is expected to remain within the RBA's target band

But headline inflation moves back over 3% as electricity rebates end

 

Australia - CPI InflationSource: ABS, QIC. Note: Grey shading denotes QIC forecasts

 

The RBA has cut the cash rate by 75bps this year to 3.60%

We expect one more rate cut next year

 

Australia - RBA official cash rate (%)Source: LSEG, ASX, QIC. Note: Red line represents QIC forecasts

 

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Australian Outlook

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