Australia and New Zealand Economics Analyst

Goldman Sachs forecasts a marked slowdown in Australian consumer spending to 1.3% yoy by end-2026, driven by an expected 5% decline in house prices and stalled real income growth. This contraction is viewed as a necessary, albeit painful, consequence of the RBA's current monetary tightening cycle to bring inflation back to target.

Key Takeaways

• 1.Consumer spending growth is forecast to decelerate to 1.3% yoy by end-2026 due to declining household wealth and softer real income growth.
• 2.House prices are projected to fall by 5% yoy by 1Q2027, primarily driven by higher interest rates and housing tax changes, creating a negative wealth effect on consumption.
• 3.The RBA's tightening cycle is expected to continue with one more hike in August, followed by an easing cycle starting in early 2027 as inflationary pressures normalize.

Table of Contents

• House Prices to Fall, Incomes to Stall, Spending to Slow
• Negative wealth effects to drag on consumption over 2026
• And slower real income growth will also weigh on consumption
• We expect an uneven deceleration in spending with more pronounced declines in cities with weaker housing market conditions and focused in discretionary spending categories
• Box A: The relationship between consumer sentiment and household consumption
• Underlying consumption growth was already slowing in 1Q2026
• Risks to our consumption forecast are broadly balanced
• A consumption slowdown is necessary for the RBA
• The Australia and NZ Economics Team
• Disclosure Appendix

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