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As this is our last Brief before the Christmas break, the Economics & Research team would like to thank our readers for their support over the year. We wish you a Merry Festive Season and a Happy New Year. In this week’s Brief, we focus on the less anticipated developments over 2025 that will continue to impact the outlook over 2026. From AI to fiscal policy, from China growth pressures to the AUD, and of course, from RBA rate calls to what needs to change at the RBA: here are 10 questions for 2026.
While Australia will not reach the sophistication and size of the US and Chinese tech giants, this does not mean that hosting a large data centre ecosystem won’t have positive spill-over effects for Australia’s tech sector. Australia will benefit from AI applications in industries it is a global leader, such as mining and agriculture.
Additionally, a data centre ecosystem, and the close connections with American tech giants that it will bring, will benefit Australia’s already world-leading quantum computing industry.
Australian governments need to cut spending to promote the transition in the Australian economy toward private-sector led growth. This will allow more balanced growth in the economy without further igniting inflationary pressures.
Lower deficits will also help cement Australia’s status as a low public-debt country, maintain our AAA rating and our attractiveness as a destination for foreign investment.
To date, the government’s fiscal stance has been expansionary. However, if the government is able to reduce spending in line with MYEFO, the federal budget will become mildly contractionary by 2027.
With the RBA unlikely to deliver rate hikes expected by the market over 2026, 10-year government bond yields are likely to fall toward 4.5%.
QIC expects China’s real GDP growth to slow from 4.9% in 2025 to around 4.5% in 2026. However, the slowdown in headline real GDP overstates the impact on the Australian economy. Importantly, an expected improvement in fixed asset investment in China, particularly across infrastructure and manufacturing, will support demand for Australia’s resource exports and our terms of trade.
We expect the iron ore spot price to ease modestly to US$95/tonne by the end of 2026. With the government’s Mid-Year Economic & Fiscal Outlook incorporating a steeper decline in the iron ore price, this outcome would see an upgrade in tax revenue over 2025-26 and 2026-27 of around $1 billion.
With interest rate differentials favouring Australia, and a recovery in Chinese fixed asset investment providing support for commodity prices, we expect the $A to increase to US$0.69 by the end of 2026.
As we outlined in a recent Brief (A healthy transition for the Australian economy), the RBA must provide stability by keeping rates on hold throughout 2026, allowing the economy to correct its current imbalances.
The RBA has done a good job of improving communications. Market analysts and economists are benefiting from a more transparent and informative Statement of Monetary Policy, including a clearer identification of risks.
Public communications from board members other than Governor Bullock and Deputy Hauser would help improve the transparency of the monetary policy decision making process.
