Australian Economic Outlook for the Rest of 2026: Free NAB x Navia Webinar

In Navia’s first webinar, Greg Amanatidis, Navia’s Director of Marketing, sits down with Gareth Spence, Head of Australian Economics at National Australia Bank, to go through NAB’s outlook for the Australian economy over the rest of 2026.

The picture Gareth paints is more measured than many businesses expected. Growth has slowed and cost pressures are real, but households came into the latest global shock in a relatively strong position, business conditions have held up better than confidence suggests, and NAB expects the RBA’s next move on rates to be down rather than up.

Figures and forecasts as discussed by Gareth Spence at the time of recording.

The Australian Economy

Global Backdrop: Oil Has Eased, but Recovery Takes Time

With oil back in the low US$70s a barrel, Gareth says markets are reading the Middle East situation more positively. Even so, he expects supply chains, gas plants and products like plastics to take time to normalise, so costs are likely to stay a little higher than late last year. Globally, he notes rates now look to have troughed, with some countries looking to raise them again.

Growth: Slower, but Still Positive

Growth slowed through the first half of 2026 as household spending, business investment outside AI and data centres, and housing construction all cooled. NAB still expects positive growth, supported by population growth and a largely recovering household sector. The next six months will show how three rate rises and the residual cost shock from the Middle East flow through to employment plans and capex.

Consumers: Well Positioned Going into the Shock

A healthy labour market, rebuilt savings buffers and resilient house prices mean households are, on average, in a relatively okay position. Gareth expects consumer spending to be a little slower from here.

Business: Conditions Are Stronger than Confidence

NAB’s business survey showed confidence falling sharply in March and April before partly recovering. Actual business conditions, including trading, profitability and employment, held up better than sentiment suggested. Geopolitical risk and government policy have become bigger drivers of confidence, alongside the usual cost and wage pressures.

The Budget: Neutral for Now, Reform Debate to Continue

Gareth describes the budget as broadly neutral for inflation, but notes it remains in structural deficit. He expects debate over tax and spending reform, including capital gains and negative gearing, to continue for years and to keep weighing on housing sentiment.

Inflation and Interest Rates

Inflation: Near Its Peak, but Still Too High

Headline inflation is peaking lower than NAB first feared, helped by fuel excise cuts and oil prices that didn’t climb as high as expected. Price rises have shown up in groceries, construction and building costs, and the agriculture sector through fertiliser and fuel. Domestic pressures such as insurance, which is tracking back above 5% in the CPI, and household services remain sticky. The key question is how quickly inflation moderates in Q3 and Q4.

Labour and Materials Constraints Easing

NAB’s latest quarterly survey shows the availability of labour as a constraint on output has eased marginally. Materials constraints ticked up in the quarter, but nowhere near the levels seen during the pandemic.

Interest Rates: On Hold, with the Next Move Likely Down

NAB had expected another hike in August but now expects the RBA to hold, with rates restrictive enough to slow growth. Cuts are expected from around Q2 2027, and Gareth expects the RBA to move cautiously and gradually. He sees a normal level for rates in the mid-3s rather than the mid-4s, and doesn’t expect a return to emergency lows.

Looking beyond the next 18 months, he expects geopolitical risk, supply volatility and climate risk to stay, bringing more volatility in inflation and rates than in the decade before the pandemic.

What It Means for Your Business

Investing and Expanding

Asked whether businesses should hold off on investing or expanding, Gareth notes that most business decisions run well beyond an 18-month outlook. Australia still has solid long-term fundamentals and a growing population, and he expects there to be opportunities for businesses that understand their near-term risks and their industry.

Retail

Retail and wholesale have been among the weaker sectors for business conditions. Consumers are highly responsive to discounting events like Black Friday and post-Christmas sales, while retailers still face insurance, labour and other cost pressures.