While global risks remain elevated, Australia’s economy is showing signs of resilience.
“If anyone was still in any doubt that we had entered a new global economic era, the last few months have put those doubts to rest,” according to CBA’s Chief Economist Luke Yeaman and his team, today publishing ‘The CommBank View’, an in-depth analysis of economic issues in the year ahead.
The report presents a cautiously optimistic outlook for FY26. Despite persistent global headwinds—including trade tensions and geopolitical uncertainty—the domestic economy is expected to remain resilient, buoyed by falling interest rates, stabilising inflation, and a rebound in household spending.
Global Landscape: A New Economic Era
CBA economists describe the current global environment as a departure from the stability of the “Great Moderation,” likening it instead to the economic volatility seen in the 1970s. The report notes:
“Conflict, volatility, and economic nationalism will remain defining features of the global economy in FY26.”
US trade policy is a major source of uncertainty. Tariff rates have tripled since 2024, and further hikes could again disrupt markets. Despite these tensions, the report highlights a willingness among global powers to avoid a full-scale breakdown of economic ties between major economies:
“The US and China chose to step back from the brink and avoid full economic decoupling — for now the costs are simply too high.”
Domestic Outlook: On the Path to a Cautious Recovery
Australia’s economic growth is expected to step up from 1.3% to 2.3% by June 2026, with inflation settling in the RBA’s target band. In light of this, CBA economists expect the RBA to deliver 25 basis point rate cuts in both July and August, bringing the cash rate to 3.35% and then hold at those neutral levels.
However, consumer behaviour remains a wildcard. While discretionary spending is beginning to recover, the report warns:
“Consumers may be experiencing some scarring from the sustained cost-of-living crunch. This could see the recovery in household consumption disappoint in FY26.”