Downbeat Deloitte’s dire outlook

Australia is set for its longest stretch of sub-par economic growth since the global recession of the early 1990s, weighed down by weak consumer and business confidence, high interest rates and resurgent inflation, one of the world’s largest consulting giants predicts.

In a dire reading for the Australian economy released by Deloitte Access Economics on Tuesday, the firm slashed its GDP forecasts to 1.3 per cent this financial year, expecting back-to-back years of sub-2 per cent growth for the first time in more than three decades.

Infrastructure NSW chairman Graham Bradley has lashed the Albanese government for the poor state of the economy, saying the nation had gone backwards and was showing no sign of any turnaround. “I am not at all surprised at the downgrade. All the indicators in my companies are we’re heading for much tighter times for business,” he said.

“From the federal budget, and some of the other policies … being put in place by the federal government, we’re going to see a hesitancy for local and international investors to come to Australia.”

The business outlook report expects headline inflation to remain above 4 per cent for the rest of the calendar year, the Reserve Bank to hike interest rates in Aug­ust and unemployment to peak at 5 per cent in 2027-28.

“For too long, strong population growth has masked a weak underlying productivity performance and lifted aggregate growth while doing less to improve living standards. Years of insufficient investment in housing, infrastructure, energy and the economy’s productive capacity have left the supply side of the economy struggling to keep pace with demand,” Deloitte Access Economics Partner Stephen Smith said.

“Deloitte Access Economics has rarely adopted such a downbeat assessment of the short-term outlook.”

Jim Chalmers attributed the unflattering figures to “lingering costs and consequences of war in the Middle East”.

“We have a lot coming at us from around the world but a lot going for us here at home,” the Treasurer said.

Despite forecasts for business investment remaining elevated in the short term – buoyed by a rapid build-out of data centres required to support AI models and cloud computing – the report shows private investment collapsing to just 0.7 per cent by decade’s end.

Mr Bradley, a former Business Council of Australia president and Virgin Australia chair, said he saw little sign of any change in fortunes for the economy.

“Our productivity over the last decade has been virtually zero, and I don’t see anything on the horizon that’s going to improve it. If anything, we’re marching quickly backwards when it comes to productivity across the economy … eventually that catches up with you in GDP,” he told The Australian.

“Even if it’s 1.3 per cent GDP growth on a per capita basis, that might well be negative, as it has been for quite a few quarters. I think this is very, very concerning, and should be very concerning for federal and state governments.”

Persistently high inflation was also weighing on economic sentiment. “The fact we still have inflation going up is a double negative, really. We’re seeing it in construction, we’re seeing it in services, we’re seeing it in insurance,” he said. “And frankly the country needs to wake up to itself that we can’t afford some of the expensive over-regulation we’ve put up with over 30 years of buoyant resource exports.”

It comes as a vast majority of Australia’s biggest renewable energy investors warn that the investment landscape has worsened in the past year and the Albanese government is set to miss its 82 per cent renewable energy target by 2030.

The Clean Energy Investor Outlook’s third annual report, published on Wednesday, notes that while delays in building transmission infrastructure is the biggest challenge facing the sector, Labor’s capital gains tax overhaul is also “damaging” Australia’s reputation as an attractive investment destination.

“Investors are losing patience with a system that isn’t delivering at pace, and creating additional barriers, like the proposed capital gains tax on existing international clean energy investments. It’s no wonder less than one in 10 investors see Australia meeting its 2030 clean energy target,” CEIG chief executive Richie Merzian said

It follows concerns aired by the business community over Dr Chalmers’ changes to the GCT discount, who say the reforms will stifle business investment and innovation and push capital into sluggish high-yield companies.

ACCI chief executive Andrew McKellar said the forecasts were a “wake-up call to policymakers” that the current policy direction was eroding competitiveness, growth and productivity.

“Policymakers can puzzle over Australia’s continuing economic malaise, or listen to businesspeople who understand that higher taxes, onerous labour laws and ever-growing regulation and red tape are killing growth,” he said.

“It’s ridiculous that at a time when we need the private sector to get the economy growing, government is piling big new burdens on business through capital gains tax and trusts.”

Anthony Albanese at the NSW Labor state conference at the weekend branded criticism of the tax legislation as “entirely predictable and barely coherent noise from the usual suspects”.

Deloitte also expects household consumption to take a significant hit as consumers weather resurgent inflationary pressures and higher borrowing costs, forecasting spending growth to slow from 2.3 per cent in the last financial year to just 1.3 per cent in 2026-27.

“Cost-of-living pressures remain the key constraint. Headline inflation may have eased to 4.0 per cent over the year to May but the price of essentials is running much faster, at 4.7 per cent,” Mr Smith said.

“At the same time, the three interest rate increases so far in 2026 mean that households with an ­average-sized mortgage have needed to find an extra $350 a month to meet higher repayments.”

ANZ consumer confidence figures fell again on Tuesday to 74.7 points, well below the 100-point mark where optimists outnumber pessimists, and significantly lower than the figures long-run average of 108.8 since 1990.

According to the release, inflation expectations moderated slightly to 5.4 per cent, still well above the Reserve Bank’s target band of 2-3 per cent.

Commonwealth Bank in its economic outlook released on Monday noted that rate pressures and a sharp downturn in home values off the back of Labor’s crackdown on negative gearing would weigh further on household spending.

“We judge that the impact of upgraded income on spending will be mostly offset by the very soft conditions in the housing market and declines in real housing wealth,” CBA’s forecast update reads.

However, Deloitte expects government spending to continue piling pressure on aggregate demand, creating headaches for RBA governor Michele Bullock in her fight against inflation, with the report suggesting public spending as a share of GDP will sit around 30 per cent in 10 years.

“The commonwealth is trying to impose more discipline. The 2026-27 budget forecasts expenses easing from 26.9 per cent of GDP to 26.6 per cent by 2029-30,” the report reads.

“But those expectations contrast with the large structural spending pressures across health, hospitals, aged care, childcare, defence and disability support, where demand is rising and community expectations are high.”

“Prior to the pandemic, the public sector consistently contributed less than one-quarter of Australia’s domestic final demand. Deloitte Access Economics’ forecasts suggest that share will be closer to 30 per cent by 2035-36.”