The Australian economic outlook for 2026

Senior ANZ Economist Adelaide Timbrell breaks down the economic forces that defined 2025, and provides ANZ’s Research’s perspective on what lies ahead for Australia in 2026, from cash rate expectations to labour market conditions and trends across residential and commercial property.

A balanced year ahead

ANZ Research expects the Australian economy to grow by around 2¼% through 2026. 2026 is a year of balance in many ways, with a solid labour market that is not overrun by either potential workers or potential jobs, interest rates that are not doing much to slow things down or speed things up, and economic growth around its “potential” rate.

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Employment steady

The unemployment rate drifted higher over 2025, but is still lower than pre-pandemic rates. The participation rate is no longer rising, which generally occurs when the labour market becomes less tight. The number of job advertisements in the economy based on the ANZ-Indeed Job Ads index was falling over the second half of 2025. Most people who want a job still have a job and this is set to broadly continue through 2026, but the very tight labour market conditions earlier in the decade are unlikely to be repeated in the near term.

Consumer spending to continue growing

Consumer spending lifted modestly over 2025, underpinned by robust growth in real incomes (i.e. income growth that wasn’t absorbed by inflation). The growth in real incomes has been supported by the 2024 income tax cuts, employment growth, wages growth and lower interest rates. ANZ Research expects consumer spending to have increased by 2.7% year on year  in 2025 (excluding inflation) and similar growth is likely to continue into 2026 and 2027, with some downside risk given the recent rate hike. A small tax cut on 1 July 2026 will provide some support to income growth, although it will ultimately do little more than reverse some of the recent increase in average share of income going to income taxes in recent years. 

Business investment expectations lift

Survey-based measures of business conditions, forward orders and capacity use have moved higher recently and have, finally, been reflected in the ABS’ capex survey . The capex survey asks businesses about their investment expectations for the coming year or so, with the most recent survey showing investment expectations 7.6% higher than the same period 12 months ago. That in turn points to solid growth in business investment over 2026. Tech-related investment has been a standout in recent data. 

Interest rates on hold

ANZ Research forecasts the RBA to be on an extended hold with the cash rate at 3.85%. Typically, easing cycles end with the cash rate at a stimulatory level, encouraging households and businesses to accelerate their spending and lending behaviour. This also usually coincides with some slack still in the economy, allowing for a period of above-trend growth (or “catch up growth” after a sluggish period) thereafter. However, this has been a different end point, with rates more neutral – i.e. not actively speeding up or slowing down spending – the labour market balanced, and growth around potential. This makes the extent of any movement in the cash rate likely to be a lot smaller, in the absence of any global or domestic “shocks” in the economy. 

Residential and commercial property outlook

On the housing market there are early signs that the upward momentum in house price growth may be moderating. Auction clearance rates have been trending lower since September, from around the time that inflation concerns rose following the August monthly CPI indicator. On the construction front, dwelling approvals are largely trending sideways at moderate levels. That in turn points to a modest upswing for housing construction in 2026 with the market likely to remain structurally tight. The recent rate hike may dampen this to an extent.

Australia’s commercial property cycle has eased from its recent highs, with approvals peaking in 2022 and work completed peaking in 2024. Activity softened modestly in 2025, though Brisbane remains the strongest performer. Queensland’s rapid population growth has supported firm capital values, rental growth and low vacancies, particularly in Brisbane’s CBD, where limited new supply has kept office vacancies among the nation’s lowest. Retail is the only sector where approvals and building activity now exceed 2024 levels, supported by normalised vacancy rates and population driven demand growth. Industrial property continues to outperform, despite moderating rent growth, while the office sector shows early signs of stabilisation after a challenging period.