Australia

Conflict in the Middle East will temper growth momentum

Australia’s momentum at the end of 2025 was strong, supported by robust exports and stronger private demand. Investment in data centres and the green transition gained traction, while household spending strengthened amid a tight labour market and wage growth. As a result, households began 2026 in a relatively sound financial position, having accumulated buffers alongside monetary policy easing in 2025. The lag effects of lower interest rates are expected to continue supporting activity in early 2026 before the impact of renewed monetary tightening gradually takes hold. In February, the Reserve Bank of Australia (RBA) reversed course and raised its policy cash rate in response to a resurgence in inflation prompted mainly by demand exceeding limited supply. The RBA raised the policy rate three times, reaching 4.35% in May, up from 3.85%, and has not ruled out further tightening given that the Middle East conflict will add to inflationary pressures. Higher interest rates rapidly feed through to households through mortgage repayments given that one-third of Australian households holds a mortgage, 95% of which are at variable rates. Most of this tightening will be felt in the second half of the year and will continue into 2027.

The conflict in the Middle East will be the main drag on growth in 2026. It expects to weaken confidence, push up input costs and erode real income, consequently slowing the growth of private demand. Public spending will therefore remain high, providing support to households and sustaining investment in the industrial sector through the green transition and defence. Export growth will benefit from higher prices and demand for LNG and thermal coal, although this will be partially offset by high fuel import costs. Chinese demand, excluding iron ore, will remain supportive as the country will be relatively shielded from the fallout of the conflict.

The mining sector will remain a key driver of growth despite the weather-related disruptions earlier this year. The sector will be supported by abundant reserves and strong copper and gold prices, although it will suffer from high input and operating costs. Difficulties in the transport segment, which was the first to be hit by higher fuel prices, will spill over to most sectors. Australia is a net importer of refined fuel, primarily from Singapore, South Korea and Malaysia, which themselves rely on crude oil from Gulf producers. The dependence extends beyond energy as Australia directly sources half of its urea imports from the Middle East. Agri-food growth will slow in the 2026-2027 season as higher fertiliser costs weigh on margins and production decreases from high volumes. Farmers will have to rebuild livestock herds and crops will face drier conditions, with El Niño likely to begin in August 2026. Nevertheless, the sector will continue to benefit from solid export performances in meat and dairy products following a record year in 2025. Last, construction activity is set to expand gradually as the recovery in building approvals and government support for first-time home buyers via a 5% deposit scheme gradually translate into higher activity.

Higher energy revenues cushion rising fuel costs

Public expenditure has been increasing since 2023, mostly towards social care. Revenues were strong in fiscal year 2026, which ends on 30 June this year, but spending pressures remained high. Electricity subsidies were phased out in December 2025, but the government introduced support measures to cushion the impact of rising fuel costs. In response to the conflict, several temporary measures have been implemented, including halving the fuel excise, suspending the heavy vehicle road user charge and waiving additional GST revenues. In FY 2027, these measures may need to be extended until cost pressures ease. The government recently announced a new strategy to build up fuel reserves and introduced AUD 1 billion in interestfree loans to support businesses most affected by fuel shortages. The 2026-2027 budget provides support to the housing market by investing AUD 2bn in housing-enabling infrastructure and will aim to boost productivity by reducing administrative red tape. The Labor government will continue to back the green transition (Future Made-In-Australia) and labour force participation by reducing the minimum personal income tax by one point. Efforts to contain expenditure will focus on the National Disability Insurance Scheme. The government will gradually curb the programme’s cost growth by tightening eligibility requirements and reassessing plans. In both FY2026 and FY2027, revenues are expected to rise strongly, offering some relief, supported by windfall gains from higher LNG prices and inflation. Overall, the budget deficit is set to persist, with rising interest payments and insufficient growth likely to weigh on public debt.

In 2025, the current account deficit continued to widen, albeit at a slower pace than in 2024 as the goods trade surplus gradually narrowed amid declining prices for key export commodities. In 2026, trade dynamics for goods and services are set to remain volatile and will be closely tied to developments in the Middle East conflict. The rebound in tourism could lose momentum and growth among partners has been revised downward, which is moderating external demand. However, Australia will benefit from higher prices and demand for LNG and thermal coal, as disruptions at the Qatari Ras Laffan oil and gas complex are likely to have lasting effects. Conversely, iron ore exports are exposed to downside risks from meteorological disruptions that occurred early this year, but primarily from intense competition from Guinea and diminished demand from China. Agricultural exports are expected to decline on back of easing prices and volumes, albeit from elevated levels, so they will still remain high. Beef exports to the US, which reached a record high in 2025, will benefit from a tariff exemption.

Imports will increase on back of high oil prices and continued purchases of AI-related equipment, although the rise will be partially contained by softer domestic demand. As a result, the current account deficit will increase in 2026 and will be pushed wider by the large net income deficit, reflecting interest payments on international borrowing and significant overseas dividend payments to foreign investors in mining companies. The deficit is financed by a combination of foreign debt purchases and FDI inflows.

Australia turns to diversified trade agreements in uncertain times

Australia’s federal election on 3 May 2025 saw the incumbent Labor government secure a convincing win. Led by Prime Minister Anthony Albanese, the Labor Party increased its parliamentary majority and secured a record number of federal government seats. They now hold 94 of the 150 seats in the House of Representatives (the Lower House which is elected for three-year terms) and a relative majority of 29 out of 76 seats in the Senate (the Upper House which is elected for six-year terms), meaning the government must get support of the green and independent senators to be able to pass legislation. The main political rival, the Liberal/National Coalition (Lib/Nat), has been weakened, partly reflecting rising public opposition to positions perceived as aligned with Donald Trump. The far-right party, One Nation, has been gaining influence on back of persistent cost-of-living pressures and growing anti-immigration sentiment.

Australia’s economy is exposed to the Middle East conflict as oil products account for around half of its energy consumption while domestic production is very limited. Prior to the conflict, oil and petroleum reserves covered only 49 days of net imports, which was the lowest level among IEA countries. The government is using gas and coal exports as leverage to help secure oil imports through trade agreements with Asian suppliers. For instance, Australia and Japan signed a joint agreement on energy supply in May, which also extends to the minerals and defence sectors. This cooperation aligns with Australia’s broader strategy that has been pursued since 2020 to reduce exposure to global turmoil and dependence on China and the US by diversifying its trade partners through numerous deals (India, UAE, UK, etc.). The latest example was the signing of the free trade agreement with the European Union, for which talks were revived in early 2026 amid heightened global uncertainty.

In addition to trade, a shift has also been occurring in Australia’s foreign and defence policy in recent years, with the most prominent transformation being the signing of the AUKUS military agreement with the US and the UK in September 2021. While the security agreement seeks to counter Chinese expansionism in the Indo-Pacific region and build on the informal military and diplomatic cooperation between the US, India, Japan and Australia (under QUAD), Australian statecraft is more about developing a new identity as a strategic ally rather than obstructing China, which remains a key economic partner. After tensions escalated in early 2023, Australia and China moved towards renormalising their trade relations through renewed economic engagements and renewed high-level dialogue.

Payment

Payment methods include:

cash: Personal cheques and bank cheques: used for domestic and international transactions;

credit cards;

electronic transactions: includes point-of-sale (POS) electronic transactions, as well as mobile apps, electronic funds transfer (EFR) and internet transactions;

EFT electronic funds and SWIFT bank transfers: the most commonly used payment method for international transactions. The majority of banks are connected to the SWIFT electronic network;

the Australian dollar (AUD) is now also part of the Continuous Linked Settlement System (CLS), an interbank transfer system for processing foreign exchange transactions simultaneously.

Debt Collection

Amicable phase

Parties are encouraged to negotiate and take “genuine steps” to settle commercial disputes prior to commencing proceedings. Parties in the Federal Court and Federal Circuit Court must file a “genuine steps” statement. Examples of such steps include settlement negotiations and informal settlement conferences with the other party.

Legal proceedings

If the amicable phase fails, proceedings will commence. The New South Wales (NSW) Supreme Court has a special list for commercial disputes, where it will proactively manage them to ensure an efficient resolution. Similar lists also operate for commercial disputes in the Supreme Courts of Victoria (Vic), Western Australia (WA) and Queensland (Qld).

If a corporate debt is overdue, uncontested, and over AUD 2,000, the creditor may issue a creditor’s statutory demand for payment of debt demanding payment within 21 days. Unless payment or an application to set it aside is made to the Court in this time, the company is presumed insolvent. The creditor may lodge a petition for winding-up of the debtor’s company. The presumption of insolvency lasts for three months following service of the statutory demand. For individuals, the process is similar, but proceedings are required to be commenced in the Fed Circuit Court or Fed Court.

In NSW, in debt recovery proceedings, a statement of claim must be personally served on the debtor, who must then pay the debt, or file and serve a defence on the creditor within 28 days (NSW), failing which default judgment may be entered against the debtor. There are different time frames for different states. If the debtor does not pay the debt and files a defence, orders will be made by the court to prepare the matter for hearing including discovery and the preparation and exchange of evidence that will be relied upon at the hearing.

During this phase, the parties may request and exchange particulars of the claim or defence made by the other party in the form of documents referred to in the claim or defence (e.g. copies of the relevant unpaid invoices and statements of account). If discovery is ordered, the parties will be required to exchange all documents that are relevant to their case. Otherwise, all documents which the parties wish to rely upon at the hearing must be included in their evidence. Before handing down judgment, the court will hold an adversarial hearing in which the witnesses of each party may be cross-examined by the other parties’ lawyers. Typically, straightforward claims may be completed within four to six months but disputed claims may last more than a year.

If a party is not satisfied with the judgment awarded by the court, it may appeal the decision. Appeals lodged against Supreme Court decisions are heard by the Court of Appeal in that state/territory. Any further appeal thereafter is heard by the High Court of Australia. The party seeking to appeal must seek leave and persuade the Court in a preliminary hearing that there is a special basis for the appeal, as the High Court will only re-examine cases of clear legal merit.

Dispute

Local Courts or Magistrates Courts (depending on the state/territory) hear minor disputes involving amounts up to a maximum of AUD 50,000 Tasmania (Tas), AUD 75,000 Western Australia (WA), AUD 100,000 (NSW, Vic, South Australia (SA)), AUD 150,000 (Qld) or AUD 250,000 (Australian Capital Territory (ACT), Northern Territory (NT)). Beyond these thresholds, disputes involving claims up to AUD 750,000 in NSW, WA, SA or Qld are heard either by the County Court or District Court. There is no County Court or District Court in Tas, NT or ACT. Claims greater than AUD 750,000 in NSW, Qld, SA, and WA are heard by the Supreme Court of each State. The Victorian County Court and Supreme Court have an unlimited jurisdiction. In the other states and territories, the Supreme Court hears claims greater than: AUD 250,000 in the NT; AUD 250,000 in ACT; and AUD 50,000 in Tas.

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Enforcement of a Legal Decision

A judgment is enforceable as soon as it is entered by the court. The plaintiff has up to fifteen years following the entry of judgment to pursue enforcement of an Australian judgment through Examination Notices, Garnishee Orders or Writs of Execution. Examination Notices force the debtor to provide information on its financial situation and assets, helping to establish a recovery strategy. The Garnishee allows the creditor to recover its debt (with interest and costs) directly from the debtor’s bank account or salary as well as from the debtor’s debtors,. Finally, the Writ orders a sheriff to seize and sell the debtor’s property in payment of the debt (together with interest and costs) owing to the creditor. As for foreign awards, enforcement in Australia is governed by statutory regimes (Pt 6 of the Service and Execution of Process Act 1992 (Cth) for judgments given in Australia and Foreign Judgments Act 1992 (Cth) for judgments given outside Australia) and common law principles. Recognition depends on whether a reciprocal recognition and enforcement agreement exists between Australia and the issuing country.

Insolvency Proceedings

Administration

A debtor company can be placed into administration by its directors, or by creditors that are owed money. The administrator will take full control of the company, and investigate and report to creditors as to the company’s business, property, affairs, and financial circumstances. There are three options available to creditors: end the administration and return the company to the director(s); approve a deed of company arrangement through which the company will pay all or part of its debts; or wind up the company

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Bankruptcy

Creditors who have a judgment debt in excess of $5,000 can serve the debtor with a bankruptcy notice. The debtor must pay the debt or apply to set aside the bankruptcy notice within 21 days of service, otherwise the debtor will be presumed insolvent. The creditor can apply to the Federal Circuit Court to bankrupt and appoint a bankruptcy trustee to the debtor’s estate. The trustee collects, protects and realises the debtor’s assets into cash, keeps the creditors informed about the debtor’s affairs and distributes any proceeds of sale of the debtor’s assets. Generally, bankruptcy lasts for three years, but can be extended if the debtor does not co-operate with the trustee.

Receivership

A receiver is appointed by a secured creditor who holds security or a charge over some or all of the company’s assets to collect the company’s assets to repay the debt owed to the secured creditor. If the process fails, a liquidation procedure may be initiated.

Liquidation

Creditors or a court may wind up a company, and appoint a liquidator who collects, protects, and realises the company’s assets into cash, keep the creditors informed about the company’s affairs and distribute any proceeds of sale of company assets. Upon completion of the liquidation, the company is then deregistered.

Last updated: May 2026