Deloitte Report Shows Australia’s Economy is Recovering but Living Standards Still at Risk

Australia’s economic trajectory for the 2025–2026 financial year is projected to be one of cautious optimism, with real GDP growth expected to reach 2.0%, followed by a moderate increase to 2.2% in 2026–2027. This forecast, as outlined in Deloitte Access Economics’ latest report, highlights the nation’s gradual recovery from previous economic challenges while underscoring risks to living standards despite improved household finances.

Key Drivers of Economic Growth

1. Strengthening Household Finances

A significant contributor to the anticipated economic growth is the improvement in household finances. Falling inflation rates, rising real wages, and recent interest rate cuts have collectively enhanced household budgets. These factors are expected to bolster consumer spending, which remains a primary driver of economic activity. The Reserve Bank of Australia (RBA) has adopted a cautious approach to monetary policy, holding the cash rate steady at 3.60% as of September 2025, reflecting a balanced stance amid ongoing inflation risks and economic uncertainty.

2. Government Spending Initiatives

Continued government expenditure is projected to support economic activity. Investments in infrastructure, public services, and social welfare programs are expected to provide stimulus to the economy, creating jobs and fostering economic development. However, Deloitte Access Economics cautions that without increased business investment, the sustainability of this growth may be at risk.

Potential Risks and Challenges

1. Absence of Increased Business Investment

A notable concern is the lack of increased business investment. Without a boost in private sector investment, the economy may face challenges in achieving long-term, sustainable growth. Business investment is crucial for innovation, productivity improvements, and expanding productive capacity. Recent data indicates that business investment remains subdued, which could limit the economy’s growth potential.

2. Global Economic Uncertainties

Australia’s economy is also vulnerable to global economic uncertainties. Geopolitical tensions and trade dynamics, particularly with major trading partners, could impact export demand and commodity prices. For instance, fluctuations in global demand for resources like iron ore and liquefied natural gas affect (LNG) Australia’s export revenues. Recent reports suggest gold is projected to become Australia’s second-largest resource export in the 2025–2026 financial year, surpassing LNG due to geopolitical tensions and strong demand for the safe-haven asset.

While the Australian economy is showing signs of recovery, with improving household finances and government spending supporting growth, the absence of increased business investment poses a significant risk to the sustainability of this recovery. Policymakers and stakeholders must focus on creating conditions that encourage private sector investment to ensure a robust and enduring economic expansion. Addressing global economic uncertainties and fostering a conducive environment for business investment will be crucial in navigating the challenges ahead.

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