Australia’s economy is expected to slow sharply next year as high interest rates, persistent inflation and weaker household demand weigh on growth, according to the International Monetary Fund.
The IMF has downgraded its forecast for Australian economic growth in 2027 to 1.6%, while unemployment is expected to climb to around 4.7%.
Inflation is forecast to ease from about 3.9% this year to 3.1% in 2027 but would still remain slightly above the Reserve Bank of Australia’s 2%-3% target range.
Australia is expected to remain among the advanced economies experiencing comparatively high inflation, increasing pressure on governments and the RBA to avoid policies that further stimulate demand.
Debt and deficits come into focus
The IMF has urged Australia to place greater emphasis on controlling government spending and rebuilding fiscal buffers.
It warned against broad subsidies and untargeted tax relief that could add demand to an economy already struggling with inflation.
Australia’s current account deficit is forecast at around 3.1% of gross domestic product in 2026 as higher energy costs and strong imports of capital equipment weigh on the external balance.
The warning comes shortly after the RBA lifted the cash rate to 4.60%, its highest level in around 15 years.
Further rate increases remain possible if inflation continues to surprise on the upside.
For households, the combination of slower growth, higher unemployment and restrictive borrowing costs points to a difficult economic environment heading into 2027.
