The message may not be ‘afraid, be very afraid’, but the latest economist's prognosis from Australia’s largest bank does not make easy reading.
Commonwealth Bank of Australia (CBA) sees the outlook for the global environment as a departure from the stability of the ‘great moderation’ and more like the economic volatility seen in the 1970s, for those with long enough memories.
Publishing their in-depth analysis of economic issues for the year ahead entitled ‘The CommBank View’, CBA economists said conflict, volatility, and economic nationalism would remain defining features of the global economy in the 2026 financial year (FY26).
They are cautiously optimistic about the outlook for FY26 with the Australian economy expected to remain resilient due to falling interest rates, stabilising inflation and a rebound in household spending.
This is despite persistent global headwinds such as trade tensions and geopolitical uncertainty.
But they also warned that not only could further shocks that significantly affect markets and real activity not be ruled out, but they should also be expected.
The economists forecast that by December 2026:
- the Reserve Bank of Australia will cut the official cash interest rate twice by 25 basis points to 3.35%
- the headline annual inflation rate will rise from 2.4% to 2.8% but the ‘trimmed mean’ rate will drop from 2.9% to 2.4%
- unemployment will increase from 4.1% to 4.3%, and
- economic growth to increase from 1.3% to 2.3%.
“If anyone was still in any doubt that we had entered a new global economic era, the last few months have put those doubts to rest,” Chief Economist Luke Yeaman and the team said in the report.
“The relative calm and prosperity of the ‘Great Moderation’ has given way to an unstable global landscape, more akin to the turbulent 1970s.
“The hallmarks of this new economic era are heightened geostrategic competition, increased market risk and volatility, a reversal of globalisation, greater government spending and more intervention in the economy.
“While we expect a general cyclical improvement in global economic conditions in 2026, relative to 2025, conflict, volatility, and economic nationalism will remain defining features of the global economy in FY26.”
