RBA Dials Back Labour Productivity Expectations Amid Weak Growth

The Reserve Bank of Australia (RBA) has downgraded its labour productivity expectation for 2026, citing weak productivity growth in recent years. According to the RBA's latest macroeconomic forecasts, released alongside its interest rate decision on Tuesday, Australia's productivity growth is expected to fall by 0.5% in 2026, down from a previous estimate of 0.2% growth.

This marks a significant downgrade from nearly a year ago, when the RBA reduced its medium-term productivity forecast from 1% to 0.7%. The move has implications for Australia's economic growth, with Governor Michele Bullock stating that continued weakness in productivity will constrain the economy's ability to grow without generating high inflation.

The RBA has set a target of low and stable inflation, which it believes can be achieved through monetary policy alone. However, this means that the economy may be required to experience a period of subdued growth before inflation can be brought down sustainably. Bullock acknowledged that Australia's productive capacity is not growing, but stated that the RBA has no control over this.