The three factors shaping Australia's outlook and how to invest

Ask any Australian at the moment about what factors are most affecting the economy and invariably, similar answers will come up. Inflation would be a top contender, rising rates and falling property would also fit the bill. The more economically minded might discuss productivity issues.

These are certainly major concerns for the domestic audience – but it’s also worth bearing in mind the broader global picture and where we sit in this. After all, some of the global picture has had significant influence in domestic concerns.

The International Monetary Fund (IMF) released its latest economic outlooks in October, including the Regional Economic Outlook – Asia and Pacific. Its views on the forces shaping the outlook for Australia and its neighbours focus on three key factors:

1. The energy shock from the US-Iran conflict
2. The AI-driven technology boom
3. Continued trade reconfiguration

The IMF notes that the region has been largely resilient, but is expecting this to be tested going forward.

“Risks remain tilted to the downside. A prolonged conflict in the Middle East could sustain high energy prices. A correction in AI-related investment or asset valuations could weigh disproportionately on Asia given its central role in global technology supply chains. Higher global sovereign yields could spill over to regional bond markets and worsen fiscal vulnerabilities.”
Executive Summary, Regional Economic Outlook – Asia and Pacific, October 2026.

Here are the key things to note and what that means for investors. Any stocks referenced are simply examples and not recommendations, so do your own research before investing to see if they suit your strategy and portfolio.

The energy shock from the US-Iran conflict

Australia, like many economies in the Asia-Pacific region, is heavily reliant on oil imports and the US-Iran conflict has put strain on supply which has translated to costs.

The Institute for Energy Economics and Financial Analysis noted that Australia was once self-reliant for oil products but is now dependent on imports which diesel, jet fuel and petrol largely imported. It is the third largest importer of jet fuel and petrol, with oil prices and costs rising above inflation since 2000 and pushing household costs (and in turn, inflation), upwards.

You can see in the chart below how oil prices have contributed to inflation.

To manage the costs, Australia used short-term policies, like relaxing fuel specifications, releasing strategic reserves, halving the fuel excise tax temporarily, along with a temporary reduction of the Heavy Vehicle Road User Charge. Other countries have taken similar paths where possible, and established alternative supplies for oil, or looked at transitioning energy sources.

“The impact of higher energy prices on private consumption has so far been limited, possibly reflecting fiscal support measures or delays in the transmission of energy costs to consumer prices,” the IMF stated.

Energy prices have contributed to a rise in inflation across the region, though its worth remembering that Australia’s inflation problem pre-dated the crisis. The IMF expects oil disruptions to contribute and higher energy prices to start to weigh on consumption and external positions. It suggests that economies, like Australia, will need to prioritise strengthening their energy supply resilience and diversifying supplies, along with increasing availability of renewable energy to reduce reliance on oil.

Investing in this factor?

The Australian government has increased the national oil reserve stockpiles – but oil is a significant economic risk.

As the Institute for Energy Economics and Financial Analysis highlights, oil is essential to key economic sectors including mining, agriculture and transport. Investors should consider what impact higher fuel costs will have to earnings in these sectors.

Where the opportunity may lie is in the government’s investment in electricification. It is investing in Cleaner fuels, Hydrogen projects, a fringe benefit tax discount for electric cars, electrifying freight and modernising the grid through the Rewiring the Nation project.

Investors could consider which companies are best positioned to take advantage and benefit from these projects, such as energy providers like Origin Energy (ASX: ORG) or AGL Energy (ASX: AGL). The likes of Fortescue (ASX: FMG) could benefit from the investments in hydrogen, given its focus on green hydrogen and green ammonia.

There’s also the potential long-term buildout of alternative energy sources, such as gas, which was suggested by Eley Griffiths' Ben Griffiths at Livewire Live this year.

The AI-driven technology boom

The benefits of the AI-driven tech boom are not being felt equally by all economies across the Asia-Pacific region. The IMF notes that countries that form part of the semi-conductor supply chain have particularly benefited and seen GDP accelerate, such as Korea, China, India and Japan.

Australia’s position in the AI boom at this stage focuses around resources supply – such as copper and lithium – or infrastructure build out, particularly data centres. The latter has been controversial of late, with a number of community disputes over building out data centres and a significant hit to NextDC’s share prices off the back of a delayed expansion to a West Footscray data centre.

The IMF notes that “concerns have emerged around technology-firm valuations, the funding of AI-related companies, the costs of AI adoption, and the scope for multiple competitors in the AI market”. 

Any fall in the AI tech boom would disproportionately hit the Asia-Pacific region, Australia may feel it via resources.

“The AI-driven technology cycle is assumed to moderate, with no exogenous boost to productivity growth, but the demand for AI is assumed to remain robust, with prices settling at higher levels,” states the IMF. 

It notes countries without positions in the global tech supply chain will face higher inflation without the tech benefits.

Investing in this factor?

Many large operators, like Amazon (NYSE: AMZN) and Microsoft (NASDAQ: MSFT), are building infrastructure in Australia and companies positioned in AI infrastructure can benefit from these contracts, like SKS Technologies (ASX: SKS) and Southern Cross Electrical Engineering (ASX: SXE). Companies involved in the grid like Origin and AGL may also benefit.

When it comes to data centres, there are ongoing community concerns over environmental impact. Assuming companies like Goodman Group (ASX: GMG) and NextDC (ASX: NXT) can continue with proposed infrastructure, they may continue to benefit from the AI-boom, but its worth bearing in mind that several major projects have already been required to scale back or halt.

Australian resources continue to benefit from the AI-boom and copper-producers like BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Sandfire Resources (ASX: SFR) have benefited. Rare earths are also part of the AI chip supply chain and some companies in this space include Lynas Rare Earths (ASX: LYC) and Iluka Resources (ASX: ILU). While these companies will benefit from demand for critical minerals, investors should be conscious of the ongoing challenges from the oil shock in the mining industry which may hit earnings.

Australia’s tech industry is smaller but there are players in this space positioned to take advantage of AI (some have already integrated it), such as Wisetech (ASX: WTC) or Xero (ASX: XRO).

Continued trade reconfiguration

The Covid pandemic forced a rethink in trade arrangements to create less dependence and greater diversification. Some economies, like India or Vietnam, have particularly benefited from this.

In more recent times, shifting US trade policies and introduction of higher tariffs have continued to support new trade arrangements.

The IMF notes that trade across the Asia-Pacific region has been particularly resilient in recent times.

“Structural factors also support the resilience of trade in the region. Countries have continued deepening trade ties through bilateral and regional trade agreements, both within the region and with European partners.

Around 20 bilateral or multilateral trade agreements involving Asia-Pacific economies were agreed or entered into force in 2025 and 2026. Although their full effects are probably still yet to be seen, they may have helped to facilitate trade reallocation and strengthen regional trade and supply-chain linkages.

Moreover, services trade now accounts for roughly one-quarter of the region’s total exports, and digitalization, rising incomes, and the growing role of services as inputs into manufacturing and global value chains are likely to keep shaping the region’s trade landscape.”
The IMF Regional Economic Outlook – Asia-Pacific, October 2026.

Australia finalised a range of new or updated agreements in the last two years, such as the Australia-UAE Comprehensive Economic Partnership Agreement, the Australia-European Union Free Trade Agreement, a review of the Australia-China Free Trade Agreement and bilateral investment treaties, such as with Argentina and discussions with Pakistan and Turkiye. Australia also continues to trade with the US, despite policy uncertainty.

The IMF note there are risks to trade based on growing protectionist measures globally which could dampen growth, but note that the trade agreements across the Asia-Pacific could help “lower trade costs, support supply chain resilience, and improve policy predictability.”

Investing in this factor?

The top Australian export industries are mining and resources, energy (gas), education, and agriculture, while Asia is Australia’s largest market (based on DFAT data).

While investors could start by looking at companies that sit in key export industries as mentioned above, it can also be valuable to look at companies with global revenue sources to offer diversification away from the Australian economy. For example, healthcare giants like CSL (ASX: CSL) might not be one of Australia’s key export markets but benefit from trade agreements and offer diversification of revenue streams away from simply the domestic market. Or tech providers with critical software, like TechnologyOne (ASX: TNE), Wisetech or Xero, can benefit from positive trade relationships in continuing to offer their own services globally.

Changing economies and outlooks

Australia’s GDP growth is anticipated to lag in coming decades and the IMF report doesn’t suggest otherwise. It suggests GDP growth is likely to fall to 1.6% in 2027. Large, developed peers aren’t necessarily rocketing either – the US is looking at 2.3%, UK at 1.2% while China is 4%.

By contrast, some of our neighbours are looking significantly rosier. For example, India is projected to see 7% GDP growth in 2027, while Vietnam is looking at 7.5%. These countries are benefiting from shifting trade patterns, demand for services and their positions in the AI chain.

Investors can still find opportunities within the domestic environment and it still offers an important part of a portfolio, but the growth in other countries, including close neighbours, is a reminder of the importance of global diversification. Access to different economies varies and it is not always easy to have direct share ownership.

Investors can consider exposure through companies with revenue streams in these countries that are listed elsewhere (such as ASX or US listed or managed funds and ETFs with exposure to these economies and themes that drive them.

The global economy continues to shift and Australia’s position will adjust alongside this. Knowing this can be an opportunity for investors.