Australia Economic Outlook

Outlook Q1 2026

Global economic conditions remain highly uncertain, with growth proving more resilient than expected through 2025 but volatility increasing due to geopolitical tensions, trade policy uncertainty and rising energy prices.

In Australia, economic growth exceeded expectations in late 2025, though momentum remains fragile and heavily reliant on public demand, with weak private activity, subdued productivity and soft household consumption. Inflation pressures have re emerged, prompting further interest rate increases, while elevated government spending continues to support activity but adds to demand side inflation risks.

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Australian overview

Australia’s economy beat forecasts in the December quarter, with per capita growth accelerating to its fastest pace in three years. While this is welcome news, unfortunately, a closer look suggests that this cannot be sustained.

Economic growth surprised to the upside

but momentum remains fragile and uneven.
Public demand and inventories drove growth

with private demand still weak.
Household consumption per capita declined

and productivity remains subdued.
Inflation pressures have re emerged

keeping underlying price risks elevated.
The RBA has resumed tightening

lifting the cash rate in early 2026.
Elevated government spending is supporting activity

but adds to inflation risk.

Global landscape

Uncertainty continues to define global conditions. Economies are navigating renewed trade policy uncertainty, spillover impacts from major conflicts, and a changing world order no longer defined by international norms or a rules-based order.

Global growth proved resilient through 2025

supported by trade, AI related investment and fiscal support.
Volatility has increased sharply

driven by geopolitical escalation and renewed trade policy uncertainty.
The Iran conflict has heightened global risk

threatening energy supply and key trade routes.
Oil prices above US$100 have revived inflation risks

complicating the global disinflation narrative.
Central banks face renewed policy challenges

with limited scope to ease amid energy driven inflation pressures.

Summary forecast

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

KPMG forecasts of key macroeconomic indicators

Indicator	2025 (actual)	2026 (forecast)	2027 (forecast)
Real GDP (average annual growth)	2.0%	2.0%	1.8%
Real GDP (year-ended growth)	2.6%	1.4%	2.0%
RBA cash rate	3.60%	4.60%	4.35%
Headline CPI	3.7%	4.7%	2.6%
Core CPI	3.4%	4.3%	2.8%
AUD/USD*	0.66	0.71	0.71