Australia’s unemployment rate could rise to 5.5 per cent by early 2028, the highest level since 2017 outside the Covid-19 pandemic, as economic growth slows sharply, National Australia Bank has forecast.
The bank expects growth to fall to just 1 per cent in 2027 as the effects of higher interest rates continue to work through the economy.
Australia’s unemployment rate stood at 4.7 per cent in September 2026, according to Australian Bureau of Statistics data. If the forecast is realised, the increase would represent around 125,000 more people without work based on the current size of the labour force.
NAB said the Reserve Bank of Australia had increased its cash rate by 125 basis points since February 2026 in response to inflationary pressures.
“In Australia, economic growth is slowing, weighed down by 125 basis points of RBA cash rate increases since February 2026 to tackle inflationary pressures,” the bank said in its annual report.
It forecasts real GDP growth will slow from an annualised rate of about 2.9 per cent in the second half of 2025 to 1.4 per cent in 2026 and 1 per cent in 2027, before improving during 2028.
The labour market has remained resilient so far despite the rate rises, but NAB warned that a prolonged period of weak growth would gradually push unemployment higher.
“While labour market indicators remain resilient at this stage, a forecast multi-year period of below trend economic growth is expected to result in a gradual rise in the unemployment rate to around 5.5 per cent by early 2028 before stabilising,” the report said.
NAB also said the Reserve Bank was unlikely to cut interest rates in the immediate future. It expects the official cash rate to remain at 4.85 per cent for a period while policymakers assess whether inflation expectations remain consistent with their target range.
“Lags in the transmission of monetary policy likely see official cash rates on hold at 4.85 per cent for a while, with the RBA seeking confidence that inflationary expectations remain consistent with its targeted range,” the bank said.
The report identified continuing cost pressures, falling house prices and weak productivity growth as risks to the outlook.
“Cost pressures continue to pose a material risk to the economy, while the correction in the housing market poses some additional downside risk to growth,” NAB said. “For both growth and inflation, productivity remains a key challenge.”
