One of Australia’s big four accounting firms has delivered a grim new economic outlook, projecting the nation will enter an extended stretch of stagnant growth not seen since the deep recession of the early 1990s, with another interest rate increase coming this year and no rate cuts on the table until late 2027.
In its monthly Business Outlook report released Tuesday, Deloitte Access Economics laid out a downbeat assessment that warns Australia’s economy will “limp” through the next two years of weak expansion, capping a slow-burn build-up of systemic vulnerabilities that have become impossible to ignore.
“To date, 2026 has revealed the vulnerabilities that have developed within the Australian economy over recent history,” said Stephen Smith, partner at Deloitte Access Economics. “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.”
The firm’s projections call for the Reserve Bank of Australia to implement one final 25 basis point interest rate hike in August, as policymakers continue working to tamed persistent inflation. Following that increase, the central bank is expected to hold the cash rate steady for 12 full months, with the first rate cut not arriving until the final quarter of 2027.
Inflation has proven far stickier than many analysts predicted: headline inflation currently sits at 4%, and Deloitte projects that rate may hold steady into 2027. Trimmed mean inflation, a key core measure tracked by the RBA, climbed to 3.6% in April, and the firm forecasts this metric will peak in early 2027 and will not drop below the RBA’s 2-3% target band until 2028.
These persistent price pressures and rising interest rates will act as a major drag on national output, according to the report. Deloitte projects Australia will record annual growth below 2% for the next two full years, marking the longest continuous stretch of sub-2% expansion since the 1990-1991 recession. That downturn saw official interest rates hit 17% and unemployment surge to 2.5 times Australia’s current jobless rate.
Australian households are already shouldering enormous pressure from cumulative rate hikes, with the average mortgage holder paying an extra $350 per month compared to pre-tightening levels. While recent policy and wage adjustments including tax cuts, nominal wage growth, and increases to award and minimum wages that took effect July 1 have offered some relief, Smith said most gains are being erased by persistent economic headwinds.
“Renewed inflation pressure, high interest rates and volatile fuel costs were eating most of those gains,” Smith explained.
Beyond domestic pressures, the report highlights deep structural vulnerabilities tied to Australia’s reliance on commodity exports. The ongoing conflict in the Middle East, Smith noted, serves as a sharp reminder that Australia, as a small open economy with a concentrated export base, is extremely vulnerable to global geopolitical disruption, swings in international demand, commodity price volatility, and disruptions to global 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,” Smith said. “They are harder to dismiss now that inflation is sticky, investment needs are rising and the global environment is more uncertain.”