The 2026 mid-year economic outlook

In his mid-year outlook, Ric Deverell, Macquarie Group Chief Economist, discusses the resilience of the global economy in the first half of the year despite heightened uncertainty. Growth in Australia will likely remain subdued for much of 2026 as the impact of interest rate increases and the Budget weigh on the housing market. A rebound, however, is expected into 2027.

In addition to the economic outlook, we are pleased to share insights from the Macquarie Wealth Management Investment Strategy Team on the road ahead for the remainder of 2026.

Risk assets are still on a positive path

Risk assets have followed the rollercoaster ride of oil prices in the first half of the year. However, the underlying fundamentals underpinning global economic growth have broadly remained intact. The US consumer has absorbed what is likely the worst of the oil price shock, without too much collateral damage, and the AI boom appears to still be on a growth path. Nonetheless, the rise in oil prices has caused pain, with some central banks with limited spare capacity in their economies forced to raise rates. This will create a soft patch of global growth, but markets are looking through this now that the price of oil has fallen sharply as the ceasefire has matured into a signed memorandum of understanding between the US and Iran that opens oil trade through the Strait of Hormuz.

There is still risk that the deal collapses, so investors need to be prepared for more volatility. Inflation also remains an unresolved problem that central banks acknowledge will require rates to remain slightly restrictive, so it’s unlikely that a meaningful pickup in growth is on the agenda. AI capex remains a bright spot that looks likely to continue well beyond year end. Investors will look to the remaining two US reporting seasons in the year for further direction.

The AI boom

Initial product creation and success have turned into a capex boom that is having global reach. Emerging markets were the star equity market performers in the first half of the year due mainly to the strong demand for AI infrastructure. Another example of how the global reach has grown is in the booming growth in Australian IT capex. It is now 20% of total capex across the broader economy.

Buoyant markets and capex demands are an ideal setting for capital raising and 2026 will be the strongest year for net equity issuance in history, due mainly to the SpaceX, Anthropic, OpenAI and Databricks IPOs. Many investors are questioning how much longer the boom can last, given the valuation premiums investors are paying to invest in companies riding the AI boom and whether the assets being created can generate sufficient cash. But at this stage momentum remains strong.

Australian property

The Australian property market has had to absorb back-to-back rate rises from the RBA at the February, March, and May board meetings, increases in capital gains tax and tightening in negative gearing benefits. Property investors have been in the crosshairs of government policy, with the aim of using the tax system to remove many property investors from the market to make way for first home buyers. The fallout of the rate rises, and tax increases has resulted in declining housing prices in the largest capital city markets of Sydney and Melbourne and a considerable slowdown in the smaller capital city markets.

At best these trends are likely to continue for the remainder of the year. At worst the fallout could accelerate, particularly if the RBA is forced to raise rates again this cycle. The government has made some concessions on the tax changes after consultation with industry groups and the public, but none of these significantly help existing property investors. The legislation is yet to pass the Senate, and this may create room for some additional adjustments, but they are likely to be only minor.