IMF says Australia is landing softly, but inflation and global risks demand policy vigilance.
Summary:
IMF sees Australia achieving a soft landing, with growth rebounding to around 2% after a weak 2024.
Inflation eased then re-accelerated, with underlying price pressures back above 3% in late 2025.
Growth expected to hold near 2% in 2026, supported by monetary easing and firmer private demand.
Risks skewed to slower growth and higher inflation, amid global trade uncertainty and domestic supply constraints.
Policy guidance: vigilance required, with support for RBA’s data-dependent stance and medium-term fiscal consolidation.
The International Monetary Fund has concluded its 2026 Article IV consultation with Australia, assessing the economy as navigating a “soft landing” but warning that risks remain tilted toward slower growth and renewed inflation pressures.
Economic momentum improved through 2025, with GDP growth rising to 2.1% year-on-year in the September quarter after a subdued 2024. The recovery has been supported by gradually strengthening private demand. As spare capacity narrowed, inflation eased through mid-2025, allowing monetary policy to be loosened. However, price pressures have since re-intensified, with underlying inflation climbing back above 3% in the third quarter of 2025.
Labour market conditions are gradually softening from previously tight levels. The unemployment rate has edged up to 4.3%, though this remains low by historical standards. Meanwhile, easing financial conditions have contributed to a rebound in house prices, and dwelling investment is beginning to recover.
Looking ahead, the IMF expects the expansion to continue. Growth is estimated at 1.9% for 2025 and forecast to rise to 2.1% in 2026, supported by the lagged effects of earlier monetary easing and firmer consumer sentiment. Inflation is projected to return to the midpoint of the Reserve Bank of Australia’s 2–3% target band in the second half of 2027 as services price pressures moderate. Wage growth is anticipated to slow further, partly reflecting weak productivity performance.
The Fund cautioned that risks remain skewed to the downside. Global trade tensions, financial market volatility and commodity price swings could weigh on demand, while domestic supply constraints and persistent labour tightness may prolong inflation. Climate risks and shifting global energy demand also pose medium-term challenges.
Directors endorsed the Reserve Bank of Australia’s recent policy tightening and its data-dependent approach, emphasising the need for vigilance amid uncertainty. They welcomed progress in strengthening central bank governance and communication.
On fiscal policy, the IMF supported medium-term consolidation to rebuild buffers, alongside targeted reforms to lift productivity and improve housing supply. While financial stability risks are viewed as contained, directors stressed continued supervision, macroprudential flexibility and coordinated structural reform to bolster long-term growth and resilience.