Economic Trends: July 2026

Drivers of economic growth

• The upturn in economic growth since mid-2024 has reflected a rebound in housing activity and public consumption (e.g. NDIS payments) especially.
• Business investment has also picked up since mid-2025, reflecting the local data centre boom and ongoing investment in green energy projects.
• Household consumption accounts for just over 50% of real GDP and has lifted from its mid-2024 lows but slowed more recently. Exports also lifted while an earlier surge in public investment has waned as a share of GDP.

Business & Consumer Sentiment

• The National Australia Bank (NAB) index of business conditions has eased so far this year to be now slightly below long-run average levels.
• The Westpac/Melbourne Institute measure of consumer confidence has stabilised of late but remains near historic cyclical lows.

Consumer spending

• Real household spending per capita has lifted modestly since mid-2024, though less than that of disposable income per capita – resulting in a moderate rebuilding in the household saving ratio. This subdued spending upturn likely reflects continued consumer caution.

Labour market

• Labour demand indicators have eased since the period of severe worker shortages in late 2022, but remain around long-run average levels.
• There’s little sign yet of a major weakening in demand which would suggest a meaningful rise in unemployment toward 5%.

Capacity utilisation

• A major reason for the rebound in local inflation, according to the RBA, is still tight levels of capacity utilisation (how fully businesses are using their productive capacity).
• According to the NAB business survey measure, capacity utilisation has eased from its mid-2022 peak, although remains modestly above long-run average levels.

House prices

• As at June, national house prices have already eased 1.3% from their March peak. The last two notable national house price corrections resulted in peak-to-trough declines of 8.6% and 8.1% respectively.
• Recent Federal Budget changes to the taxation of residential property will likely lead to further house price weakness due to reduced investor demand. Were the RBA to increase interest rates further – not my base case but still a risk – this would place even greater downward pressure on house prices.

Housing demand/home loans

• The major cities of Sydney and Melbourne have had the biggest house price corrections to date after having risen less strongly during the earlier upturn. Poor affordability in recent years has favoured cheaper smaller capital cities.
• Both investors and existing homeowners largely drove the housing demand upturn since mid-2024, with demand from first-home buyers relatively flat. Most of investor and owner occupier demand went into existing homes, though investor demand for new construction also increased.
• With recent Federal Budget changes, a focus will be on the extent to which this encourages a shift in demand to new properties and from investors to first-home buyers.