Deloitte Access Economics Business Outlook

7 October 2026: Australia’s economic good fortune is running out, prompting Deloitte Access Economics to downgrade its growth forecasts for a second consecutive quarter. The economy may avoid a near-term recession, but for households caught between high inflation, rising interest rates and weak growth, it will feel like one.

The September 2026 edition of Business Outlook now puts Australian economic growth at 1.7 per cent in 2027-28, down from 1.9 per cent forecast in the June edition, and 2.1 per cent in 2028-29, down from 2.2 per cent previously.

Releasing the report, Deloitte Access Economics Partner and report author Stephen Smith said that while the Australian economy’s near-three-decade stretch of uninterrupted growth from the early 1990s until the onset of the COVID-19 pandemic was record breaking, its quality deteriorated over time, relying increasingly on a larger population rather than a more productive workforce.

“Between the 1990s recession and the 2008 financial crisis, economic growth per hour worked – a measure of labour productivity – increased at an average annual rate of 2.0 per cent. That compares to average annual growth per hour worked of just 1.2 per cent between 2008 and the pandemic,” he said.

“If the quality of growth had been deteriorating prior to the onset of the pandemic, it has since all but vanished. Indeed, measured on a ‘per hour worked’ basis, the Australian economy today is smaller than it was at the end of 2019.

“Increasingly, Australian economic growth has been achieved by adding more people to the economy rather than making each worker more productive. In short, Australia has mistaken a larger economy for one which is more prosperous.

“That is not an argument against population growth. Migration has been one of Australia’s great economic strengths. Skilled migrants expand capability, ease labour shortages, improve the population’s age structure, and deepen the tax base. A smaller, older and less open Australia would face serious economic costs.

“But population growth is not an alternative to productivity growth. It sustainably strengthens an economy only when paired with adequate housing supply, faster planning approvals, deeper capital investment, timely infrastructure delivery, stronger competition, better skills formation and greater business dynamism. Without that pairing, population growth means the harder disciplines of allocating capital well or forcing firms to compete harder for customers and workers are not imposed.

“Paradoxically enough, growth is now both too slow when measured per capita or per hour, and yet too fast in aggregate. The Reserve Bank of Australia has been at pains to point out that the Australian economy is one in which moderate demand can generate inflation because productive capacity is expanding too slowly.

“The policy priority is therefore the supply side. Australia needs reforms that lift productivity, accelerate housing and infrastructure delivery, broaden business investment and translate AI adoption into higher output per worker. Such reforms are no longer optional.”

Deloitte Access Economics’ forecasts suggest:

• Underlying (trimmed mean) inflation: Expected to remain above 3.0 per cent until the December quarter of 2027 and not return to the midpoint of the target band until the second half of 2028 – six months later than the Reserve Bank is currently forecasting.
• Interest rates: The Reserve Bank is expected to raise the cash rate by a further 25 basis points at its November meeting, taking it to 4.85 per cent. Five rate rises in 2026 would add some $9,000 a year in interest costs to the average new owner-occupier loan.
• The unemployment rate: Forecast to increase to 4.8 per cent in 2026-27 before peaking at 4.9 per cent in 2027-28, falling thereafter as a slowing economy limits inflation and gives the Reserve Bank room to cut rates.

Elevated inflation and waning central bank patience have already prompted 100 basis points of interest rate increases this calendar year, with another rate hike still expected this side of Christmas. As a result, growth prospects have been downgraded in this edition of Business Outlook, yet again.

Despite this, Stephen Smith said Deloitte Access Economics does not anticipate a near-term recession in Australia.

“That is principally because the drivers of growth – and, incidentally, of inflation – appear largely impervious to higher interest rates. Government spending, data centre construction, spending by older and wealthier Australians, fuel prices and construction costs will not be easily tamed by a higher cash rate.

“The RBA can still suppress aggregate demand, but only by applying more pressure to the sectors that respond. The adjustment will therefore be concentrated among lower-income and mortgaged households, dwelling construction, and business investment outside the AI ecosystem.

“But while Australia is expected to avoid a recession in the aggregate, households will continue to experience recession-like conditions. That divergence will weigh on discretionary consumer spending, widen differences across sectors and intensify political pressure.

“At the same time, risks continue to rise. While not the most likely outcome, a worsening Middle East conflict and higher fuel prices could push inflation higher and prompt the Reserve Bank to raise interest rates further.

“Elsewhere, rising bond yields could undermine stretched sharemarket valuations. Together, these shocks could weaken both financial markets and economic activity enough to push Australia into recession in 2027.

“For now, however, the most likely outcome in the short term is for more of the same: modest, muddle-through growth in aggregate, and flat or declining activity when measured per person.”

Key forecasts: Deloitte Access Economics Business Outlook, September quarter 2026

Business Outlook is a quarterly publication presenting detailed economic forecasts and commentary to help understand the economic forces shaping the business environment. The forecasts cover a detailed assessment of the national economy, world growth prospects, each of Australia’s states and territories, and industries.