An economist's take on the key macro signals to watch in 2026

As investors develop their 2026 strategies, it's essential to understand the backdrop against which markets will be moving.

While the Australian economy appears to be in fairly good health overall, a few question marks remain that could shape potential returns next year. 

We spoke to AMP economist My Bui to get her take on the Australian macro outlook for 2026, the one chart that's caught her interest recently and the potential development that might be flying under investors' radars. 

How is the Australian economy looking going into 2026? 

It’s been looking a bit more solid lately and likely will keep doing so going into 2026 – you hope that the 75 basis points worth of rate cuts would at least have that effect! 

However, we don’t think it will be a sharp pick up from here as government spending and investments would likely slow further and it is unlikely private business investment can sustainably increase at a similar pace like in 3Q (which was driven by data centres), while dwelling investments growth might slow as well, given recent stagnation in building approvals.

We are looking at 2.2% growth for next year.

What’s your view on where inflation goes in 2026?

Inflation will moderate, as much of the recent rise has been concentrated in administered/indexed prices (e.g., utilities, council rates, property charges, health). 

We see market-driven inflation remaining manageable, given that there hasn’t been any breakout in consumer discretionary spending, and forward-looking price surveys (such as PMIs or NAB business surveys) are still trending down. 

We expect the trimmed mean to return to the midpoint of the RBA target band by the end of next year.

What do you think are the biggest questions facing the RBA right now? 

The biggest question is how much potential growth there is in our GDP.

Their latest forecasts/assumptions were for productivity growth hovering around 0.7%pa, but we think that is a bit too pessimistic. Over the last year, productivity has already picked up by about 0.8% YoY and, as a result, we think that trend growth is slightly higher than the 2.2% that the RBA forecasts (which means that our economy is around or slightly below trend, not running red hot as some commentators might say!).

Do you think they will cut or hike rates in 2026, and if so, why?

I don’t think there will be a hike as the unemployment rate is likely ticking up further (based on leading indicators like job ads and the likely slowdown in hiring in the care economy). 

In the near term, they will hold, and a cut is MAYBE possible, but the bar is very, very, very high (especially given the recent hawkish readings from the RBA).

What’s your outlook for the Australian dollar?

We think it could break higher as the Fed now looks more likely to cut than the RBA, and over the medium- to long-term, it is actually undervalued (on a PPP valuation basis).

What's an interesting chart you’ve come across recently?

The chart below shows the massive rise in IT sector capex in Australia, mostly driven by data centres in NSW and Victoria. 

Data centre expansion also underpinned the 3.4% QoQ growth in private business investment in Australia in 3Q25. Markets have been talking about the US economy being propped up by AI capex, but it looks like Australia is following the same pattern lately! 

It is good to see business investment booming, as we’ve had really poor capex growth in the 2010s, and I think it is one of the contributors to stagnant productivity. Let’s hope that this translates into better productivity over the longer term!

What’s the one macro risk you think investors and analysts aren’t paying enough attention to going into 2026?

In the short term – maybe the risk of another government shutdown in the US! But usually it does not matter too much for markets over the long term.

For next year, I also think Bitcoin will be interesting to watch going forward with the recent selloffs. Every few years, Bitcoin goes through a Bitcoin winter, and there is a real chance it falls further from here. 

But if this time around, it does not fall as much as in 2022 (-75% peak-to-trough) then that is actually a sign that Bitcoin is gaining more institutional investor support and more legitimacy in the market. It will also be a sign that it is becoming more gold-like in an environment of higher fiscal deficit and higher government debt.

Can Bitcoin avoid another big bear market?