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Australia's Economic Slowdown Just Beginning, Experts Warn Amid Inflation and Rate Hikes

From ABC Australia · () English

Translated from English, summarized and contextualized by DistantNews.

At a glance

News From a news agency Context piece
  • Australian economists warn the nation's economic slowdown is just beginning, driven by interest rate hikes and cost-of-living pressures.
  • GDP per capita contracted in the first quarter, and household spending is expected to remain flat, with unemployment rising.
  • Experts predict a potential technical recession as inflation remains high and productivity growth is weak, necessitating an economic downturn to control prices.

Economists are warning that Australia's economic slowdown is in its early stages, with rising interest rates and persistent cost-of-living pressures expected to significantly impact households. The economy grew by a mere 0.3 percent in the first quarter, a figure that predates the full impact of the Middle East war and its associated oil price shocks.

Surging inflation, sky-high oil prices and shattered confidence will collide to crimp spending through the rest of the year.

— Harry Murphy CruiseHead of economic research and global trade at Oxford Economics Australia, on the economic outlook.

Concerns are mounting as GDP per capita contracted by 0.1 percent in the first quarter, marking the first decline since early 2025. Oxford Economics forecasts household spending on a per capita basis to be broadly flat throughout 2026. Furthermore, they anticipate a weakening job market, with unemployment projected to climb close to 5 percent by 2027, following a recent uptick in April to 4.5 percent.

We expect per capita household spending to be broadly flat in 2026, while softer hiring will push unemployment close to 5 per cent through 2027.

— Harry Murphy CruiseForecasting consumer spending and unemployment trends.

The Reserve Bank of Australia (RBA) is actively working to curb inflation, which remains above its target band, exacerbated by the recent oil price surge. RBA board member Ian Harper noted that higher interest rates are intended to slow the economy and reduce the risk of entrenched inflation. However, HSBC economists predict a more severe downturn, expecting GDP to contract in the second quarter and warning of a rising risk of a technical recession, defined as two consecutive quarters of negative GDP growth.

We expect inflation to be with us for a while. Higher interest rates are expected to slow the economy and lower the risk that inflation becomes entrenched.

— Ian HarperRBA board member on inflation and interest rate policy.

Compounding these issues is a significant drag on the economy from declining productivity. Measures like GDP per hour worked have fallen, which economists argue reduces Australia's potential growth and dampens living standards. AMP's deputy chief economist, Diana Mousina, stated that weak productivity is a 'massive drag on the economy.' HSBC believes the necessary downturn to bring inflation under control is already underway.

Our view, since March, has been that GDP is likely to contract in Q2 (three months to June).

— Paul BloxhamHSBC chief economist on the likelihood of economic contraction.
DistantNews Editorial

Originally published by ABC Australia in English. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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