Risk pendulum swings from inflation fight to trade tensions, economy to gradually gain momentum.

Australia’s economy: Momentum ahead despite tariff uncertainty

Australia’s economy is entering a period of transition. Despite uncertainty around global tariffs and sluggish business investment, growth is expected to gradually gain momentum through the rest of this year and into 2026.

Some sectors are already showing resilience, particularly as Australia accelerates efforts to decarbonise its electricity network. At the same time, lifting weak productivity growth will be critical to ensuring higher living standards in the years ahead.

These themes headlined the Oxford Economics Australia bi-annual Economic Outlook Conference series, held in September in Sydney, Melbourne and online. Across both events, our economists unpacked the major macroeconomic outlook and sectoral trends shaping the year ahead – from real estate and housing to climate and sustainability.

This year’s conferences offered delegates timely insights into the opportunities and risks facing the Australian economy, with more detailed research and analysis to be shared in the months ahead.

The risk pendulum swings from fighting inflation to navigating trade tensions and kickstarting productivity growth, but the economy is expected to “gradually gain momentum”

The economic conversation in Australia is shifting. After years of battling inflation, the focus is now turning toward navigating global trade tensions and finding ways to reignite productivity growth.

At first glance, Australia might seem somewhat shielded from President Trump’s latest wave of tariffs. But as Harry Murphy Cruise, Head of Economic Research and Global Trade at Oxford Economics Australia, points out, “we are not immune to the fallout. Global uncertainty is lapping on our shores, unsettling businesses and weighing on the labour market.”

One of the biggest challenges? Business investment. It’s currently lagging, holding back productivity and keeping the economy stuck in a long-term slow lane. According to Sean Langcake, Head of Macroeconomic Forecasting, turning this around will be critical. “Policymakers should prioritise better skill matching and removing unnecessary roadblocks that confront construction and investment,” he says. 

There is, however, light at the end of the tunnel. With inflation now easing, the Reserve Bank of Australia is expected to move ahead with rate cuts. Oxford Economics Australia forecasts one more cut before the end of this year, followed by a final cut in early 2026. That would bring the cash rate down to 3.1%, where it is expected to remain for some time.

These cuts should provide a much-needed boost to the economy, setting the stage for a gradual recovery. Growth is forecast at 1.7% in 2025, picking up to 2.1% in 2026. The message is clear: while global headwinds remain, Australia’s economy is inching closer to regaining momentum – provided policymakers and businesses can work together to lift productivity and investment.

Tariff-ying: How Australia is adapting to a less predictable world

Global trade tensions are reshaping industries around the world, with high-end technology grabbing much of the spotlight. But here in Australia, it’s the beef industry that’s emerging as one of the biggest winners.

As Ben Udy, Lead Economist at Oxford Economics Australia, explains: “The government’s recent decision to allow beef imports from the US has little implication for Australia. After all, Australian exports of beef to the US have been surging in recent times due to low herd numbers in the US.” What makes the outlook even brighter for Australian producers is how tariffs are playing out. While Australia continues to face the minimum 10% tariff rate on beef exports to the US, key competitors haven’t been as fortunate. New Zealand now faces a 15% tariff, and Brazil has been hit with a massive 50% tariff.

That shift puts Australian beef in a prime position to capture a larger share of the growing US demand.

But beef isn’t the only story. Oxford Economics Australia also expects broader export growth across industries in the coming years. Mined commodities, particularly iron ore, are set to benefit from ongoing resilience in China’s economy, which continues to underpin demand.

The takeaway? While global trade disputes create plenty of uncertainty, Australia’s beef industry – alongside its resources sector – looks set to seize fresh opportunities and strengthen its position on the world stage.

Climate reality check: Australia’s productivity under pressure

When it comes to climate change, Australia faces a clear choice: act now or pay a steep price later. As Kristian Kolding, Head of Consulting at Oxford Economics Australia, puts it: “Australia’s long-term prosperity depends on setting climate targets that are both feasible and ambitious. In an era of short attention spans, we cannot afford to have short-term thinking. Inaction today will be increasingly difficult to unwind as the productive capacity of our economy erodes without action.”

Our latest analysis shows that while the transition to net zero does come with short-term costs, the long-term payoff is undeniable. Alex Hooper, Head of Climate & Energy Economics, explains: “Doing nothing on climate change may look safe in the short run, but from 2035 it sets us on a steady decline, with productivity 35% lower than our base case by 2060. Taking action not only avoids that path, it leaves the economy more productive than the baseline by 2050, with gains continuing to build thereafter.”

The takeaway? Well-designed, equitable policy can turn the challenge of climate transition into an opportunity for greater productivity, resilience, and prosperity in a low-carbon future.

Case study

Climate Risk Insurance Modelling for Australia’s Future

Oxford Economics Australia supported the Australian Prudential Regulation Authority (APRA) and the Council of Financial Regulators by delivering detailed economic modelling, regional income forecasts, and emissions-aligned climate scenario analysis to guide insurance affordability and resilience planning under climate transition risk.

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