Overview
The Australian economy faces slower growth, rising unemployment and persistently high inflation in 2027, according to the International Monetary Fund’s latest World Economic Outlook, released on October 13, 2026.
The IMF expects Australia’s unemployment rate to increase from 4.4% in 2026 to 4.7% next year, the largest projected rise among developed economies. At that level, the number of unemployed Australians could approach 800,000.
- Australia’s unemployment rate is forecast to rise from 4.4% in 2026 to 4.7% in 2027, the largest projected increase among advanced economies, according to the IMF.
- Australian economic growth is expected to slow from 1.9% to 1.6%, while inflation eases from 3.9% to 3.1%, remaining above the Reserve Bank’s 2–3% target.
- The RBA has raised its cash rate to 4.6%, a 15-year high, and signaled that further tightening may be necessary despite the potential impact on employment and household spending.
Most other advanced economies are expected to experience stable or declining unemployment over the same period.
Despite the projected deterioration, Australia’s unemployment rate would remain below those of several major developed economies, including Britain at 5.3%, Canada at 6.3% and Sweden at 8.1%.
Inflation is forecast to decline from 3.9% in 2026 to 3.1% in 2027. That would leave Australia with one of the highest inflation rates among advanced economies and slightly above the Reserve Bank of Australia’s target range of 2–3%.
Australian GDP growth forecast cut for 2026 and 2027
The IMF projects Australian GDP growth of 1.9% in 2026, slowing to 1.6% in 2027. Both estimates have been reduced by 0.1 percentage points from the fund’s April forecasts.
The weaker outlook contrasts with expectations for the global economy, which the IMF forecasts will expand by 3.1% this year and 3.4% in 2027.
Global inflation is projected to reach 4.7% in 2026 before moderating to 4.1% next year, reflecting continued pressure from energy and food prices.
IMF chief economist Silvana Tenreyro warned that the global economy’s ability to withstand successive economic shocks was weakening.
The pandemic, supply chain disruptions, conflicts in Ukraine and the Middle East, and changes in international trade have created considerable uncertainty.
Investment in artificial intelligence infrastructure and adjustments to energy supplies have helped offset some of the economic damage caused by higher oil prices.
This resilience is under strain. Without shoring up supply capacity and replenishing policy buffers, the global economy could soon test the limits of resilience.
Silvana Tenreyro, IMF chief economist
She also warned that economic expansion has become increasingly dependent on a relatively small group of technology companies, industries and countries.
Rising government borrowing costs add another risk, with interest rates on public debt reaching their highest levels in more than a decade.
The IMF urged governments to rebuild fiscal reserves and reduce debt vulnerabilities to improve their ability to withstand future disruptions.
RBA signals higher unemployment may be necessary to reduce inflation
The IMF’s projections follow the Reserve Bank of Australia’s decision to increase its official cash rate to 4.6%, the highest level in 15 years.
Minutes of the RBA’s September monetary policy meeting, released on October 13, indicate that policymakers are prepared to accept slower employment growth to bring inflation under control.
The central bank acknowledged that global cost pressures had made it more difficult to achieve its objectives of price stability and full employment simultaneously.
Members concluded that persistent supply shocks could require weaker demand and employment growth than previously anticipated.
The RBA has sought to return inflation to its target while preserving employment gains, but elevated energy prices and domestic capacity constraints have complicated that approach.
Commonwealth Bank’s head of Australian economics, Belinda Allen, said the minutes suggested policymakers were becoming less confident that Australia’s labor market could maintain its recent strength.
Financial markets assigned approximately a 30% probability to another interest rate increase at the RBA’s November 2–3 meeting.
Government debt, AI investment and inflation remain key risks
Australian Treasurer Jim Chalmers said the IMF’s latest outlook reflected considerable pressure on the global economy, particularly from the Middle East conflict.
The war is pushing up global inflation while pressures in financial markets, high global debt and reassessments of AI expectations all pose considerable downside risks.
Jim Chalmers, Australian Treasurer
He argued that Australia was relatively well positioned to benefit from investment in artificial intelligence and improvements in supply chain resilience.
Shadow treasurer Tim Wilson criticized the government’s fiscal management, arguing that public borrowing was contributing to inflation and increasing costs for households and businesses.
The IMF’s assessment places Australia’s economic policy challenge in sharper focus. Inflation is projected to remain above target even as GDP growth slows and unemployment increases.
The next RBA decision will depend partly on whether incoming inflation data provide evidence that price pressures are easing sufficiently, or whether further monetary tightening is required to bring inflation back within the target range.
