The Economic Outlook for 2026: What Aussies Can Expect
The cost-of-living crisis has been a significant challenge for many Australians in 2025, and according to Compare the Market economic director David Koch, the situation is not expected to improve much in 2026. With inflation on the rise and interest rates likely to remain high, households can expect another tough year ahead.
The Year That Was: A Review of 2025
The past year has seen significant increases in living costs, with home and contents quotes rising by nearly 23%, car insurance quotes increasing by close to 18%, and energy bills on default market offers going up by as much as 9.1% in some parts of the country. The average grocery spend has also increased by $6.50 a week, which translates to $338 over the year. These increases have left many Australians feeling pessimistic about their financial situation.
The Year That Will Be: Economic Predictions for 2026
In 2026, the focus will be on inflation, which is expected to continue rising. The Reserve Bank will be closely watching the December quarter inflation figure, which will set the tone for the rest of the year. The OECD has warned that the Australian government needs to cut back on spending, which is at near-record levels, to help reduce inflation and government debt. RBA Governor Michelle Bullock has also stated that government spending is adding to inflation and is one of the reasons interest rates are staying high.
Interest Rates: What to Expect
Koch does not believe that Australian borrowers will get any interest rate cuts in 2026, even if those in the US do. In fact, he thinks that the next interest rate movement could be up, which would be psychologically damaging for the economy and homeowners. The only certain thing in 2026 is that the value of capital city residential properties will continue to rise due to a shortage of supply.
The Job Market: A Silver Lining
While the cost-of-living crisis will continue, the job market remains strong heading into the New Year. This means that those who want a job can still get one, providing a silver lining in an otherwise challenging economic environment. A strong job market can help mitigate the effects of rising living costs and provide a sense of security for households.
What You Can Do to Prepare
While no one knows for sure what the future holds, there are steps that households can take to prepare for the challenges ahead. Building an emergency fund as a financial safety net is always a good idea, and homeowners can try to create their own rate cut by shopping around and switching to a better offer. By focusing on what you can control and exploring options for savings, you can set yourself up for a brighter financial future.
Conclusion
The economic outlook for 2026 is challenging, with rising inflation and interest rates likely to continue. However, by understanding what to expect and taking steps to prepare, households can navigate the tough times ahead. With a strong job market and a shortage of supply in the housing market, there are still opportunities for growth and savings. By being proactive and taking control of your finances, you can set yourself up for success in 2026 and beyond.
