The Australian outlook for 2026

Hear from Ric Deverell, Macquarie’s Chief Economist, about the forces that shaped 2025 and his outlook for the Australian economy in 2026, including projections about the cash rate, labour market, plus residential and commercial property markets in 2026. 

2026 should be positive for risk assets

The US market provides the direction to global markets and provided AI capex continues then the outlook remains positive. Investors will look to earnings growth to drive returns rather than PE expansion, particularly in expensive markets like Australia and the US. The US market is also benefiting from a productivity rebound as US corporates maintain margins by absorbing some tariff costs and slow hiring and hours worked. There are also signs the productivity rebound is being supported by AI absorption. 

The market risks around interest rates and AI investment are best managed by diversifying risk asset exposures. Global trade tensions have eased for now and this will benefit markets such as Europe, Japan and Emerging Markets where valuations are less stretched than Australia. 

RBA rate cut hopes evaporate

In the first half of this year, it appeared like the inflation battle was being won and interest rates were coming down. Growth was picking up, and housing prices were increasing. But by year end the inflation genie was once again trying to escape the bottle and plans to lower the cash rate further were abandoned. Inflation remains above the top of the RBA’s target band and it’s possible that its next move could be to increase the cash rate. 

Domestic developments aren’t the only consideration for monetary policy, and we are cautiously optimistic that global growth will improve next year. There are risks attached to White House economic policy and overinvestment in AI, but it is broadly positive mainly because of the rate cuts in 2024 and earlier this year. If the global economy evolves as we expect then Australia’s labour market and export sector will be well supported making it more unlikely that the RBA will cut rates again.

Property

The 75bp of rate cuts delivered by the RBA this year have led to a pickup in interest rate sensitive sectors such as housing and consumer spending. Property prices in the smaller, more affordable capital city markets such as Brisbane, Perth and Adelaide are rising strongly relative to the Sydney and Melbourne markets where there are signs price growth is slowing. The banking regulator, APRA, recently decided to intervene and slow the growth of more risky lending by limiting debt to income lending to 6 times for 20% of bank lending. This will probably slow lending growth a touch but changes in the interest rate outlook will be more important for the market. As for commercial property, Ric Deverell shared that we’ve seen a reset this year and is optimistic about the market moving into 2026.