Deloitte Access Economics Business Outlook: Oil price retreats, domestic pressures persist

7 July 2026: Oil prices may be falling, but rising interest rates, weak consumer and business confidence, stalling housing investment and a prolonged cost-of-living crisis have pulled down Australia's growth prospects.

In the June 2026 edition of its Business Outlook report, Deloitte Access Economics has slashed its real GDP growth forecast for 2026-27 from 1.9% to 1.3%. Growth over the year to December 2026 is now expected to be just 1.1% and the Australian economy is now expected to limp along at less than 2.0% annual growth for the next two years - the longest stretch of sub-par growth since the early 1990s recession.

Releasing the report, Deloitte Access Economics Partner and report author Stephen Smith said: "Australia's growth outlook has deteriorated over the past six months. The economy is still expanding, but growth has slowed and the outlook has become more fragile. Inflation has reaccelerated, interest rates have moved higher, and the oil price shock triggered by conflict in the Middle East is not yet fully resolved.

"To date, 2026 has revealed the vulnerabilities that have developed within the Australian economy over recent history. Australia is now structurally exposed in ways that have become hard to ignore. Deloitte Access Economics has rarely adopted such a downbeat assessment of the short-term outlook.

"For too long, strong population growth has masked a weak underlying productivity performance and lifted aggregate growth while doing less to improve living standards. Years of insufficient investment in housing, infrastructure, energy and the economy's productive capacity have left the supply side of the economy struggling to keep pace with demand.

"The result is an economy more prone to inflation pressures at lower rates of growth. Meanwhile, the Middle East conflict has been another reminder that as a small open economy with a concentrated export base, Australia is highly sensitive to geopolitical disruption, shifts in global demand and commodity prices, and the security of trade routes.

"The interaction of geopolitical exposure, weak productivity, stretched household balance sheets and a constrained supply side was easy to overlook when interest rates were low, commodity prices were high and population growth kept aggregate growth ticking along. They are harder to dismiss now that inflation is sticky, investment needs are rising and the global environment is more uncertain.

"With oil prices retreating to levels close to those seen before the Strait of Hormuz was closed, Australia - and the rest of the world - appears to have avoided a worst-case scenario. But with the focus turning back to the domestic environment, the picture is hardly reassuring."

Our forecasts suggest:

• Headline CPI may remain above 4% for the remainder of the calendar year, with underlying inflation edging higher as the oil shock works through supply chains, peaking in early 2027 before returning to target in 2028.
• Interest rates will likely rise by 25 basis points in August followed by a 12-month pause before normalising inflation allows the RBA to ease monetary policy late next year.
• The unemployment rate will average 4.9% in 2026-27 and may peak at 5% across 2027-28, before falling slightly as lower inflation and interest rate cuts stimulate the labour market.

Overall, Deloitte Access Economics currently expects the Australian economy to grow by 2.2% in 2025-26, 1.3% in 2026-27 and 1.9% in 2027-28 - a decrease on prior forecasts of 2.4%, 1.9% and 2.0%, respectively.

Households under pressure, business investment remains narrow

The economy is unlikely to gain momentum until households and businesses are more confident to spend and invest. Consumer spending is weakening as Australian households adjust family budgets to deal with drawn out cost-of-living challenges, while business investment remains subdued outside of data centre construction.

Stephen Smith said: "Households remain under pressure. Tax relief, nominal wage gains and higher minimum and award wages from July will provide some support. Yet those offsets are being tested by renewed inflation pressure, higher borrowing costs, volatile fuel and transport costs, and weak confidence.

"Cost-of-living pressures remain the key constraint. Headline inflation may have eased to 4.0% over the year to May, but the price of essentials is running much faster, at 4.7%. At the same time, the three interest rate increases so far in 2026 mean that households with an average-sized mortgage have needed to find an additional $350 per month to meet higher repayments.

"The labour market remains a key source of support for households in aggregate, though with real wages back in negative territory, many households are wrestling with the very practical question of whether incomes can keep pace with the rising cost of everyday expenditure.

"Business investment has strengthened over the past six months, but that strength is narrowly focused. The standout sector was information media and telecommunications, where capital expenditure almost doubled and equipment investment almost tripled.

"That points to the rapid build-out of data centres to support cloud computing, artificial intelligence and more data-intensive business models. That investment is real. It will add to Australia's digital capacity and may support productivity over time. But the near-term effects are less powerful than the headline numbers imply, including because most of the equipment being installed is imported.

"While Australia still has important strengths, including a resilient labour market and the productivity potential of AI, the near-term outlook is unusually downbeat. With risks firmly tilted to the downside, from global volatility to cost-of-living pressures at home, the key question for 2026 and beyond is the strength, breadth and durability of growth and what can be done to improve it."

Key forecasts: Deloitte Access Economics Business Outlook, June quarter 2026