Deloitte Access Economics remains optimistic about the outlook for the Australian economy despite the global economic and geopolitical environment becoming “increasingly fragile”.
In its latest business outlook, Deloitte said the combination of lower inflation, declining interest rates, rising real wages, solid government spending growth, and a robust labour market is expected to provide the basis for a “gradual improvement in domestic economic fortunes in the near term”.
Deloitte Access Economics expects economic growth in Australia to accelerate from an estimated 1.3 per cent in 2024–25 to 2.1 per cent in 2025–26, before lifting further to 2.4 per cent in 2026–27.
It has also forecast that the RBA will cut rates by 50 basis points over the remainder of 2025, followed by a further 50 basis points in 2026.
Deloitte Access Economics partner and report co-author, Cathryn Lee, noted that while economic growth hit a speed bump at the beginning of 2025, quarterly growth was only slightly softer than expected.
“A combination of Cyclone Alfred, other weather events, and a dip in government investment spending constrained growth in the March quarter,” said Lee.
“That result – quarterly growth of 0.21 per cent – triggered some negative headlines, though was not the disaster it has been made out to be. The result was only slightly softer than Deloitte Access Economics’ forecast and was broadly consistent with the weather-related headwinds.”
Deloitte expects consumer spending to pick up over coming quarters, even with global economic headlines weighing on consumer confidence.
“Conditions are improving. Real wages are grinding higher, interest rates are declining, and inflation is no longer preying on consumers’ wallets or their psyche,” the outlook stated.
Overall, Deloitte Access Economics expects real household spending growth to lift from just 0.75 per cent over the year to the March quarter of 2025, to around 2.3 per cent by the end of this calendar year.
A further improvement in growth to 2.7 per cent is then anticipated over the year to the December quarter of 2026.
The outlook for business investment, on the other hand, has softened amid rising uncertainty.
“The Australian Bureau of Statistics’ latest capital expenditure survey suggests investment will lift by around 3 per cent in 2025–26, based on historical realisation ratios,” said Deloitte.
“That expectation is down slightly from the 4 per cent increase expected for 2025–26 three months earlier. That downward revision in anticipated spending came despite a stronger starting point in 2024–25 and reflects growing caution among firms,” said Deloitte.
The escalation of global trade tensions – captured during the latest survey period – has added to economic policy uncertainty, said Deloitte.
“Uncertainty raises the possibility of getting investment decisions wrong, leading firms to delay or defer plans,” it said.
“A prolonged period of uncertainty and structural change – including high required rates of return – has already weighed on investment and potential output growth.
“The Organisation for Economic Cooperation and Development recently found that business investment in Australia is around 30 per cent below the trend rate recorded prior to the 2008 financial crisis – one of the widest shortfalls among advanced economies.”
Deloitte said there are still reasons to be optimistic, however, with structural trends supporting growth in areas such as technology, data infrastructure, and clean energy.
“In addition, lower interest rates, a growing population, and the ongoing digital transition provide a supportive backdrop for investment over the medium to longer term,” it said.
“As uncertainty gradually recedes, these fundamentals can be expected to reassert themselves, providing a platform for stronger investment in the years ahead.”
On the global economic front, Deloitte warned that rapid policy shifts and a retreat from globalism in the US are combining with more fragile international supply chains and a weakening growth outlook.
US tariff policy remains a key influence on the outlook, it warned.
“Although the ‘on again, off again’ whipsawing has faded, there remains little certainty about where policy settings will eventually land,” said Deloitte.
“The next significant milestone is now the conclusion of the 90-day pause that was instituted shortly after Liberation Day, due on 8 July. Yet even as that day draws near, there are few indications that the policy position is set to become clearer.”
Deloitte also noted that the World Bank had downgraded global growth expectations, following similar releases by the International Monetary Fund and Organisation for Economic Cooperation and Development in recent months.
“Those expectations all paint a similar picture, with 2025 expected to record the slowest growth since the 2008 financial crisis, excluding the pandemic period,” it said.
