Deloitte Access Economics’ Business Outlook: Running on empty
Together, domestic and international pricing pressures have kicked off another business cycle.
Australia’s economic growth is set to slow sharply as inflation and unemployment rise and the Reserve Bank reverses its 2025 rate cuts.
Releasing the March 2026 edition of the quarterly Business Outlook report, Deloitte Access Economics warns that mounting domestic and global price pressures have triggered an unpredictable new business cycle.
The conflict in the Middle East has rocked the global economy, sending inflation expectations soaring while growth forecasts plunge. In Australia, the sticker shock of higher petrol prices has been jarring, but the pain doesn’t stop there. Fuel is a notable input cost across much of the economy, so there will be a significant filtering through of price pain into other sectors as 2026 progresses.
Home grown inflation was already a problem four weeks ago when that conflict got underway, moving quickly from ‘nearly under control’ to ‘we have another problem’ in late 2025. Meanwhile, the RBA has opened the year with back-to-back rate hikes and is threatening to go the hat-trick.
These factors combined suggest that the Australian economy is running on empty. Higher fuel prices and a domestic economy that struggles to contain inflation at modest rates of economic growth are different dimensions of a supply crisis story. Together, domestic and international pricing pressures have kicked off another business cycle.
From here, these forecasts suggest:
- Interest rates see another lift in the June quarter (and then hold steady for a year, with cuts back on the agenda from June 2027)
- The 2.6% real GDP growth over the year to December 2025 is likely to be the peak in the cycle (moderating to growth of 1.8% by December 2026)
- The unemployment rate may move up to a peak of 4.9% in June 2027 (before then starting to drift down again)
Overall, Deloitte Access Economics currently expects the Australian economy to grow by 1.9% in 2026-27, down from an expected 2.4% in 2025-26.
Today, the near-term outlook depends considerably upon the course and duration of the Middle East conflict. Crude oil prices will be the primary channel through which the supply shock is transmitted to the global economy. This edition of Business Outlook is benchmarked on the current oil price futures market.
Of course, the conflict in the Middle East has set off a broader multi-commodity shock because of the long list of products produced from or adjacent to energy supplies. Fertiliser is at the top of the list and could have significant implications for food prices further down the line.
This comes on top of existing inflation and rate hikes, which are squeezing household budgets.
In response to rising price pressures, the Federal Government has halved the fuel excise for three months from April 1st to ease costs for consumers. Headline CPI was seen as peaking at 4.9% growth over the year to June 2026, but with Monday’s fuel excise cut, that peak may instead be 4.5%. However, this may also boost fuel demand amid a supply shortage, risking exacerbating demand-supply imbalances – a key driver of the recent inflation surge.
Deteriorating confidence may see firms delay business investment. The 2.6% GDP growth seen at the end of 2025 might be the most robust we see for quite a while.
Government spending is another factor that must be considered as part of the economic outlook. It has accounted for around half of Australia's growth since the pandemic – double its share in the preceding decade. Government spending looks to be on a continued growth trajectory as a share of the economy, even at a time when inflation is spilling over and the RBA is actively suppressing demand elsewhere.
The Treasurer is making some noise about Federal Government savings measures, while productivity-enhancing reform has also been part of the conversation. That direction is welcome. Also very welcome is the sentiment that this upcoming Budget will have an objective of tackling intergenerational inequity, which is a blight on Australia’s economic landscape.
However, current fiscal settings are actively working against intergenerational equity. If the RBA is being relied upon to stem inflationary pressures rather than receiving support from fiscal policy, the burden is increasingly placed on mortgage holders and renters, who are more likely to be young Australians. There would need to be a lot in the Budget favouring young people just to break even.
This newsletter was distributed on 31st March 2026. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Amy Kerrigan (Economist, Deloitte Access Economics).
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