National Economic Outlook

Although the Iran War has clearly undermined and delayed the economic recovery that had been expected through 2026, the effects of the conflict so far haven't been as bad as first feared, at least across some indicators. Business confidence has lifted, following a pullback in the month after Middle East conflict broke out, and investment in the March 2026 quarter provided a stronger starting point than anticipated. We have upgraded our forecasts for private (non-building) investment on this basis, and after a bit of an immediate lull, we now expect growth in private business investment to reach 7.5%pa at the start of 2027. Business investment is set to be driven by continued technology investment as AI use grows, and with further vehicle and machinery purchases, as businesses seek to spend more upfront to lower ongoing operating costs and create more resilience from cost-based disruption.