Australia is on track to record one of the worst unemployment rises and inflation rates in the developed world, according to sobering projections from the International Monetary Fund.
In a world economic outlook released on Tuesday, Australia is estimated to see unemployment hit 4.4 per cent in 2026 and rise to 4.7 per cent in 2027.
That 0.3 per cent rise would equate to an estimated 100,000 more people unemployed.
Australia would be an outlier among developed nations, with most to see a modest fall in unemployment or no change over the same period of time.
Reserve Bank of Australia Governor Michele Bullock in September warned that unemployment may have to rise as high as 5 per cent to target sticky inflation after the board raised the cash rate to a 15-year high to get a handle on prices.
The IMF has projected Australia’s inflation to be the fifth-highest in the developed world at 3.9 per cent in 2026 – behind Iceland at 5.6 per cent, Israel at 4.5 per cent, Greece at 4.2 per cent and New Zealand at 4.1 per cent.
IMF's forecasts for select major economies
| Country | Inflation 2026 | Inflation 2027 | Unemp. 2026 | Unemp. 2027 | GDP growth 2026 | GDP growth 2027 |
|---|---|---|---|---|---|---|
| Greece | 4.20% | 3.60% | 8.00% | 7.60% | 1.80% | 1.80% |
| Australia | 3.90% | 3.10% | 4.40% | 4.70% | 1.90% | 1.60% |
| Germany | 2.70% | 3.10% | 4.00% | 3.70% | 1.30% | 1.10% |
| Portugal | 3.20% | 3.00% | 5.90% | 5.90% | 2.10% | 1.90% |
| Belgium | 3.80% | 2.90% | 6.20% | 6.10% | 0.70% | 1.10% |
| New Zealand | 4.10% | 2.80% | 5.40% | 5.10% | 2.00% | 2.60% |
| United States | 3.60% | 2.80% | 4.20% | 4.00% | 2.30% | 2.30% |
| Ireland | 3.40% | 2.80% | 5.00% | 5.00% | -1.00% | 3.70% |
| Italy | 3.30% | 2.80% | 5.60% | 5.80% | 0.80% | 0.60% |
| United Kingdom | 3.30% | 2.80% | 5.30% | 5.30% | 1.30% | 1.20% |
Source:International Monetary Fund, 2026 World Economic Outlook
Inflation is expected to fall to 3.1 per cent in 2027, which will still be above the RBA’s 2 to 3 per cent target range.
On the global stage, inflation is expected to rise to 4.7 per cent in 2026 before it drops to 4.1 per cent next year.
And Australia’s growth forecast was downgraded from 1.9 per cent in 2026 to 1.6 per cent in 2027, with both figures being 0.1 per cent lower than what was projected in April.
In comparison, global economic growth is projected to rise from 3.1 per cent this year to 3.4 per cent next year.
The IMF said the global economy has remained resilient despite an “extraordinary” number of shocks over a short period of time – the pandemic and wars in Ukraine and the Middle East – with labour markets unexpectedly strong and inflation falling from its peak in many economies.
But IMF chief economist Silvana Tenreyro warned that resilience is under strain.
“Without shoring up supply capacity and replenishing policy buffers, the global economy could soon test the limits of resilience,” she said.
“With gains clustered in a small number of firms, sectors and economies, global expansion is heavily reliant on a narrow set of technological and financial conditions.”
Treasurer Jim Chalmers blamed global conflicts for the state of the Australian economy.
Treasurer Jim Chalmers said Australia was not immune to global impacts but is better placed than many other countries.
“The war is pushing up global inflation while pressures in financial markets, high global debt and reassessments of AI expectations all pose considerable downside risks,” he said.
“We are well positioned to benefit from the global AI investment boom and our efforts to strengthen supply chains are helping to buffer us in a fragmenting world.
“Many of the policy priorities the IMF recommends to all countries in this report are things we are already doing, like finding $180 billion in savings since coming to government, banking upward revisions to revenue, investing in energy security and rolling out the largest productivity package decades.”
Shadow treasurer Tim Wilson accused his federal counterpart of failing to curb government spending to bring down inflation and pointing the finger elsewhere.
“Australians can’t pay their mortgage with Jim Chalmers’ excuses,” he said.
“If the treasurer keeps ignoring the warnings, families and small businesses will pay the price with more rate rises, fewer jobs and an economy that keeps going backwards.”
