Australia’s economic growth outlook dims as productivity stalls

Australia’s economic growth has been downgraded for the second consecutive quarter, signaling ongoing challenges in boosting productivity. Deloitte Access Economics now forecasts the economy will grow at 1.7% in 2027-28, down from its previous 1.9% prediction made in June. The firm also revised its 2028-29 growth forecast to 2.1%, a slight decline from its earlier 2.2% estimate.

Stephen Smith, a partner at Deloitte Access Economics, highlighted that Australia’s reliance on population growth rather than workforce productivity is a major concern. He noted that productivity growth, which measures economic output per hour worked, has significantly slowed over the past three decades. ‘If the quality of growth had been deteriorating prior to the onset of the pandemic, it has since all but vanished,’ Mr. Smith said. He added that the economy is smaller on a ‘per hour worked’ basis than it was at the end of 2019.

Inflation remains a pressing issue, with Deloitte predicting it will stay above 3% until the December quarter of 2027. The firm also anticipates another cash rate hike at the Reserve Bank of Australia’s November meeting. A total of five rate rises in 2026 could add approximately $9,000 annually in interest costs to the average new owner-occupier loan.

Despite these economic challenges, Mr. Smith does not expect a near-term recession. However, he warned that households will continue to face recession-like conditions, which will likely impact consumer spending and increase political pressure. Australia’s GDP grew 2.1% year-on-year and 0.4% in the June quarter, but productivity dropped 0.2% annually.