Australia’s ‘golden era’ of growth is coming to an end, Deloitte warns, with the country heading into its weakest sustained period of growth since the early 1990s recession as households and businesses face higher interest rates, weak confidence and stubborn inflation.

Deloitte Access Economics has cut its forecast for Australian economic growth in 2027 to 1.7%, down from its previous 1.9% estimate. It warns that the economy is entering an extended period of sub-par growth.

The consultancy says it is likely Australia will narrowly avoid a recession, but households and businesses could experience conditions that feel like one. 

The warning comes as consumer confidence has fallen sharply following the RBA’s latest interest rate increase. The Westpac-Melbourne Institute consumer sentiment index fell 4.7% in October, reaching its lowest level since April. Confidence among consumers surveyed after the rate hike dropped 20%.

Deloitte expects underlying inflation to remain above the RBA’s target until the end of 2027. Unemployment is forecast to peak at just below 5%.

The consultancy said Australia has benefited for decades from a combination of strong population growth, rising property prices and construction activity, which has allowed the economy to expand even as productivity growth remained weak.

That model is now becoming increasingly difficult to sustain.

Deloitte partner Stephen Smith said the structural and cyclical factors that had supported Australia’s economy for more than three decades could no longer be relied upon to deliver strong growth.

“It was good while it lasted,” Smith said, arguing that Australia had repeatedly delayed reforms across taxation, regulation, government spending, skills and federal-state relations.

The report warns Australia has effectively confused having a larger economy with becoming more prosperous, with population growth adding workers, consumers and taxpayers without delivering the productivity improvements needed to lift living standards.

Government spending and investment linked to AI are expected to provide some support for the economy, with Deloitte noting both areas are relatively less sensitive to higher interest rates.

However, the consultancy warns that government consumption is continuing to rise as a share of the economy, raising concerns about public-sector productivity and the potential for higher taxes, borrowing or inflation.

Deloitte is calling for reforms to lift productivity, accelerate housing and infrastructure delivery, increase business investment and ensure the adoption of AI translates into higher output per worker.

The warning also comes with significant downside risks. Deloitte says a combination of worsening geopolitical tensions, further interest rate increases and tighter regulation of AI does have the potential to push Australia into recession during 2027.

“Rarely has the potential path to a deep downturn been signposted so clearly,” Smith said.

The report argues that supply-side reforms are no longer optional if Australia is to avoid a prolonged period of weak growth.

The outlook points to a more challenging economic environment after decades of population growth and a property-led expansion which helped to keep the national economy moving forward.

The next phase, according to Deloitte, will require Australia to generate more economic output from its existing workforce rather than simply relying on adding more people to the economy.