National Economic Outlook

The 2026 Iran War has upended economic expectations for 2026, with previous patchy green shoots replaced with yet another period of intense uncertainty that has undermined consumer and business confidence. We expect year-end economic growth will only improve to 1.3%pa by the end of 2026, compared to our January 2026 forecasts which had growth of 2.5%pa pencilled in for this calendar year. Although economic growth is still expected, much of this economic improvement is a technical bounce back from lower levels of economic activity in 2025. In many respects, businesses and households are likely to sit on their hands again in 2026, with higher prices and more uncertainty limiting household spending, business investment, and hiring intentions. More intense inflation flowing through supply chains is likely to require the Reserve Bank to increase interest rates faster than many would have originally anticipated, dealing a further blow to economic growth prospects.