Commonwealth Bank predicts slower growth and higher unemployment ahead of expected fifth rate rise

Commonwealth Bank released a research paper on Monday warning that Australia’s economy is facing heightened pressure from global and domestic factors. The bank said the combination of the Middle-East conflict, high interest rates and weak productivity growth is likely to push gross domestic product down to about 1% by the middle of next year, roughly half of its earlier forecast of 1.8%.

The analysts noted that household spending remains robust despite inflation, which could sustain price pressures, while the labour market is expected to weaken more than previously anticipated. They projected the unemployment rate to rise to 5.1%, up from a prior peak of 4.8%.

The report also highlighted that data-centre construction and ongoing chip shortages are adding to inflationary pressures, even as AI-driven capital spending supports economic activity. Headline inflation was recorded at 4.3% over the 12 months to September.

The bank expects economic weakness to persist, with growth not reaching 2% until the second half of the 2028 financial year. While a higher Australian dollar could result from further rate hikes, the bank cautioned that anticipated rate cuts in the second half of 2027 remain uncertain.

Barclays, cited in the paper, remained bullish on the Australian dollar and suggested the Reserve Bank of Australia could continue raising rates beyond November if data warrants it.