Australia Key Themes 2026: Competing dynamics dominate the outlook

Momentum is building in the Australian economy but that doesn’t mean all’s rosy for the outlook. Inflation has re-accelerated just when rates were meant to be cut, households are being pulled in different directions, and the drivers of the economy are shifting. Against that backdrop, we’ve identified three themes that will shape 2026.

1. Inflation is back. With inflation back above target and domestic demand surging, rate cuts are off the table for 2026. The question now is whether the Reserve Bank of Australia tightens policy further or plays the waiting game.
2. A more divided economy. Outright homeowners will support discretionary spending through the opening half of the year, while mortgage holders keep a much tighter rein on spending. A similar split is emerging in business investment, with AI-linked sectors booming while investment elsewhere remains subdued.
3. Public sector hands the baton to the private sector. Privately funded investment in energy, mining, and technology is projected to outpace public infrastructure investment in 2026.

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