Australia Economic Outlook

Outlook Q3 2026

Australia's economy remains resilient, but momentum is weak. Higher interest rates and cost-of-living pressures are constraining household spending, business sentiment remains pessimistic and the labour market has softened. Inflation has re-emerged as a challenge due to higher energy prices and disruptions to global supply chains, increasing the likelihood of further policy tightening. While AI-related investment continues to support parts of the economy, weak productivity and restrictive financial conditions are expected to weigh on growth over the period ahead.

Australian overview

Australia's economy remained resilient in the June quarter, with GDP rising 0.4% supported by household spending, exports and government demand. However, momentum has slowed through the first half of 2026, productivity remains weak and GDP per capita was flat, highlighting ongoing challenges for living standards and long-term economic prosperity.

Subdued growth

Economic growth remains subdued, with annual GDP growth slowing to 2.1%.
Household pressures

Households continue to face pressure from higher interest rates and cost-of-living challenges.
Rising inflation risks

Inflation risks have intensified due to higher energy prices and ongoing disruptions to global trade routes.
Softer labour market

The labour market is softening, with unemployment rising to 4.5% and job advertisements continuing to trend lower.
Restrictive financial conditions

Financial conditions have become increasingly restrictive for both households and businesses.
AI investment support

AI-related investment remains an important source of support, particularly through data centre and digital infrastructure projects.
Productivity constraint

Weak productivity growth remains a major constraint on the economy's ability to grow without generating inflation.

Global landscape

Despite heightened geopolitical uncertainty, the global economy has remained more resilient than expected through 2026. Strong investment in artificial intelligence, data centres and digital infrastructure continues to support demand, trade and industrial activity.

Resilient global growth

Global growth has remained resilient despite the ongoing Iran conflict and disruptions to energy markets.
AI investment momentum

AI-driven investment continues to support activity across major economies, particularly in data centres, semiconductors and digital infrastructure.
Shipping disruption risks

Attention has shifted to the Red Sea and Bab al-Mandeb Strait, increasing concerns around shipping disruptions and global trade flows.
Renewed inflation pressures

Rising oil prices and shipping disruptions have reignited inflation pressures across many advanced economies.
Higher rates for longer

Major central banks have adopted a more hawkish stance, increasing the likelihood that interest rates remain elevated for longer.
Fiscal sustainability concerns

Financial markets are increasingly focused on inflation risks, public debt levels and fiscal sustainability.

Summary forecast

* Values at end of period
# Actual values
^ Forecast values

KPMG forecasts of key macroeconomic indicators

Indicator	2025 (actual)	2026 (forecast)	2027 (forecast)	2028 (forecast)
Real GDP (average annual growth)	2.0%	1.9%	1.6%	2.1%
Real GDP (year-ended growth)	2.6%	1.2%	1.9%	2.2%
Unemployment rate	4.3%	4.7%	4.9%	4.9%
Headline CPI	3.7%	3.5%	2.5%	2.8%
Core CPI	3.3%	2.9%	2.7%	2.6%
RBA cash rate	3.60%	4.85%	4.60%	4.35%
AUD/USD*	0.67	0.71	0.71	0.71

Download the report

Full details about the Australian economic conditions and forecasts can be found in KPMG’s Australia Economic Outlook: Q3 2026