Australian economy steadies but remains finely balanced heading into 2026

Australia’s economy is rebounding, but households remain cautious and inflation risks continue to linger, according to Commonwealth Bank economists who describe the national outlook as “an important juncture” heading into 2026.

CBA economists say the coming year will test whether Australia can sustain its recovery while managing inflation and navigating external risks - a balancing act that will shape consumer confidence and marketing sentiment across 2026.

“The Australian economy is at an important juncture,” CBA chief economist Luke Yeaman, said.

The latest CommBank View report shows domestic recovery is being underpinned by rising private activity, improving consumer confidence and a lift in house prices. GDP growth has reached 1.8% and is forecast to hit 2.2% by the end of 2026.

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But while momentum is returning, the path ahead remains finely balanced. Inflation has re-emerged as a risk, jobs growth is slowing and wage gains are easing, while global uncertainty continues to weigh on sentiment.

CBA expects the Reserve Bank of Australia to deliver one final rate cut early next year as policymakers navigate mixed signals from economic data and household behaviour.

Tensions shape domestic outlook

Head of Australian economics Belinda Allen said recent trends highlight “emerging tensions” in the data that are complicating policy decisions.

“There are emerging tensions in recent economic data, complicating the outlook. Improvements in economic activity have been accompanied by weaker employment growth, and upside surprises to monthly inflation data. This tension has created a challenge for the central bank in determining the extent and timing of further easing in monetary policy,” she said.

Household spending is broadening as consumers regain confidence, yet many families remain cautious and continue to build savings buffers. Business investment is still subdued and the labour market is softening despite headline growth numbers improving.

Global risks and fragile recovery

Globally, the outlook has brightened as interest-rate and tax cuts in the US begin to stimulate activity, but geopolitical risks remain acute. The report warns that renewed US-China trade tensions, including threats of rare earth restrictions and new tariffs, could disrupt fragile stability.

A comprehensive US-China deal “still remains elusive”, while China’s slower growth has prompted further fiscal support measures. In Europe, expansion is modest amid sluggish investment in defence and infrastructure.

CBA’s head of FX, international and geoeconomics, Joseph Capurso, said global markets remain vulnerable to policy shocks. “A loss of Fed credibility would undermine markets and drive-up long-term inflation expectations,” he said.

The report notes Australia’s ambitious target to cut greenhouse gas emissions by up to 70 per cent by 2035 will hinge on major renewables investment, EV adoption, and industrial transition. Policymakers will need to accelerate incentives and coordination to meet the targets.

Globally, fiscal discipline will be key to maintaining market confidence as government debt levels rise and investors remain sensitive to changes in policy direction.

CBA economists say the coming year will test whether Australia can sustain its recovery while managing inflation and navigating external risks — a balancing act that will shape consumer confidence and marketing sentiment across 2026.