Deloitte cuts Australia growth to 1.3%, warns of worst run since 1991

Deloitte cut its growth forecast and warned Australia faces its longest weak-growth run since the early-1990s recession.

Deloitte trims the growth outlook

Deloitte Access Economics cut its forecast for Australian economic growth in 2026-27 to 1.3%, down from 1.9%, in a Business Outlook released 7 July 2026.verifiedVerified Sourced from Longest stretch of weak growth since 1990s forecast (AAP, Newcastle Herald). The firm now expects growth of 2.2% in 2025-26, 1.3% in 2026-27 and 1.9% in 2027-28.

Holding below 2% across those years would be the longest such stretch since the early-1990s recession.verifiedVerified Sourced from Longest stretch of weak growth since 1990s forecast (AAP, Newcastle Herald). The firm said the outlook had deteriorated over the past six months as higher interest rates and an oil price shock took hold.verifiedVerified Sourced from Australia's economy faces longest stagnation since 1990s recession (AAP syndication).

The downgrade landed as the local share market drifted rather than dropped, with the S&P/ASX 200 near 8,831 points and easing about 0.15% in early July trade. The muted move suggests investors had already priced in a soft run of growth.

The forecast is a downgrade on the firm's own March outlook, which had pencilled in stronger numbers before the past six months turned sour. Slower growth over a run of years, rather than a single sharp contraction, is what sets this stretch apart.

Productivity sits at the core

The report pins the weakness on the supply side of the economy rather than a collapse in demand. Partner Stephen Smith said years of thin investment in housing, infrastructure and energy had left supply struggling to keep pace with demand.

Productivity grew just 0.3% in the March quarter, well short of the roughly 1.7% quarterly average recorded between 2004 and 2016. That gap points to an economy producing less extra output for each hour worked than it did a decade ago.

Smith said Australia was now structurally exposed in ways that had become hard to ignore. He said strong population growth had masked a weak underlying productivity performance and lifted headline growth while doing less to improve living standards.

Population growth hides a per-person squeeze

The report frames the population point as the reason aggregate growth looks better than household reality. Adding more people lifts total output even when output per person barely moves, which flatters the headline figure.

Smith said the near-term lift from a wave of new equipment spending would be weaker than the headline numbers imply, partly because much of the gear being installed is imported. He said that spending would add to digital capacity and might support productivity over time.

The report ties the per-person weakness to years of insufficient investment in housing, infrastructure and energy. Without that capacity, extra demand pushes on prices and imports rather than lifting what each worker can produce.

Rates and the oil shock bite

The cash rate stands at 4.35% after the Reserve Bank raised it by 25 basis points on 6 May 2026. Deloitte expects one further increase in August as the central bank keeps leaning against inflation.

An unresolved oil price shock tied to conflict in the Middle East is adding to the pressure, alongside a cost-of-living squeeze on households. Headline inflation is forecast to stay above 4% through the end of the calendar year.

The trimmed mean measure sits near 3.6%, among the highest across advanced economies. Sticky underlying inflation is the reason the firm still sees the bank tightening rather than cutting.

Households and the labour market

Consumer confidence remains subdued, with the ANZ-Roy Morgan weekly gauge slipping 1.2 points to 74.7. Higher borrowing costs and rising prices are the main forces keeping households cautious.

Deloitte pointed to a labour market that is still a source of strength, with unemployment at a relatively low 4.4%. A steady jobs market gives the economy a floor even as spending stays soft.

The mix of solid employment and weak output per person is the tension running through the outlook. It leaves households working but not obviously better off as prices and borrowing costs stay high.

The political response

Treasurer Jim Chalmers linked part of the drag to global forces while playing up domestic resilience. He said the country had a lot coming at it from around the world but a lot going for it at home.

The report frames the fix as a productivity and investment challenge rather than a short-term fiscal one, pointing to housing, infrastructure and energy capacity. Smith said the supply side had been left struggling to keep pace with demand after years of underinvestment.

Deloitte Access Economics released the Business Outlook on 7 July 2026.

This article is general news reporting and commentary. It is not financial advice and does not take your personal circumstances into account. Consider speaking to a licensed financial adviser before making investment decisions.