CBA forecasts stronger global growth next year as interest rate cuts and tax relief take effect, though trade tensions and tech boom concerns linger.
28 November 2025
The world economy is expected to gain momentum in 2026, according to Commonwealth Bank’s latest outlook. Growth is forecast to rise to 2.7%, helped by recent interest rate cuts and tax changes in the United States.
Interest rate cuts mean borrowing money becomes cheaper for businesses and households, which usually encourages spending and investment. Tax changes in the US are also giving companies and high-income earners more room to spend.
Most central banks - the organisations that set interest rates - are expected to finish cutting rates by mid-2026. After that, rates are likely to stay steady for a while. In simple terms, interest rates will be at a level that neither slows the economy nor speeds it up; a “neutral zone”.
Markets are already watching for possible rate increases later in 2026 or in 2027 if economies start growing fast and inflation becomes a concern.
“While the outlook has improved, risks are far from gone. Geopolitical tensions and the scale of AI investment could disrupt the recovery,” said Joseph Capurso, Commonwealth Bank Head of Foreign Exchange, International & Geoeconomics.
“If the AI boom delivers on its promise, it could lift long-term growth. But in the short term, it may create inflation pressures and test energy supply.”
The US economy is set for a solid rebound, with growth forecast at 2.4% thanks to tax cuts and business investment incentives. China will grow at 4.5%, supported by exports and government stimulus, though weak domestic demand and falling property prices remain challenges.
Japan and Europe are also expected to see modest gains. Japan’s growth will be helped by a weak yen (making exports cheaper) and government spending, while the Eurozone benefits from defence investment and past rate cuts. However, tariffs and political uncertainty continue to weigh on trade.
Despite the brighter outlook, several risks could derail the recovery. A fragile US-China trade deal could collapse, reigniting tariff wars. The surge in AI-related spending in the US raises fears of a bubble and short-term inflation pressures. Meanwhile, the threat of political interference at the US Federal Reserve – America’s central bank - and ongoing geopolitical tensions add further uncertainty.
Australia’s economy will feel the ripple effects of stronger global growth. A healthier world economy usually supports demand for Australian exports like minerals and energy, which can boost national income.
Interest rates at home are expected to stay steady at 3.6% throughout 2026, according to CBA forecasts. That means mortgage holders may not see relief from repayments soon, but the stability of interest rates could help households plan ahead.
Businesses exposed to global trade, especially in resources and agriculture, may benefit from improved conditions overseas. However, risks such as renewed trade tensions or an AI-driven energy crunch could still affect costs and supply chains.
See the team’s full analysis of the global economy here.
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