Australia Economic Outlook

Outlook Q2 2026

The easing of the Iran conflict through the recent signing of Memorandum of Understanding between the US and Iran has reduced, but not eliminated, one of the most significant key risks facing the global economy. Oil prices surged above US$100 per barrel, while they have eased, continue to put pressure on energy, transport and input costs. At the same time, a softening global growth backdrop is creating uncertainty for commodity demand, although the ongoing AI-driven investment cycle is providing an important offset to weaker global conditions via supporting demand for key commodity inputs and sustaining investment activity.

In Australia, the economy is slowing under the weight of persistent inflation and tighter financial conditions following three RBA rate hikes in early 2026. GDP growth has eased sharply, with consumption constrained by cost-of-living pressures and tightened financial conditions, while business conditions and productivity remain weak. Growth is expected to remain weak throughout 2026, highlighting a challenging trade-off for the RBA as it balances inflation against slowing economic momentum.

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Australian overview

Australia’s economy is entering a more complex phase where resilience is being tested by both global shocks and persistent domestic pressure.

Economic growth is slowing

GDP rose just 0.3% in the March quarter, down from 0.9% previously.
Households remain under pressure

with spending increasingly focused on essentials.
Investment is strong but uneven

supported by strong demand for data centre infrastructure and AI-related projects.
Exports declined

due to weather disruptions, while imports rose.
Labour market is softening

with rising cost pressures
Financial conditions are tightening

Rising interest rates have increased borrowing costs.

Global landscape

Recent data, though too early to fully capture the Iran conflict’s impact, points to resilient global activity supported by strong AI investment. While some near-term disruptions have arisen, progress toward a peace deal suggests we can look through this as a temporary phase.

Global growth remained resilient in early 2026

supported by AI-driven demand, particularly in advanced economies.
AI investment is driving trade and industrial activity

Increased spending on data centres and electronics is boosting exports and production, especially in Asia.
Geopolitical and policy uncertainty persists

including unresolved US tariff settings and evolving US–China relations.
Cascading impacts from the conflict in Iran

are driving ongoing uncertainty, though the effects appear temporary.
Inflation and financial conditions remain key pressures

after oil prices surged above USD100, pushing up global inflation.

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%	1.8%	1.4%	1.8%
Real GDP (year-ended growth)	2.5%	1.2%	1.6%	1.9%
RBA cash rate	3.60%	4.60%	4.35%	4.35%
Headline CPI	3.7%	4.0%	3.0%	2.7%
Core CPI	3.4%	3.0%	3.1%	2.8%
AUD/USD*	0.67	0.71	0.71	0.71

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Full details about the Australian economic conditions and forecasts can be found in KPMG's Australia Economic Outlook: Q2 2026.