Stephen Koukoulas, one of Australia’s most prominent economic commentators, a former chief economist at Citibank and a senior economic adviser to a former prime minister, has delivered a blunt assessment of his 2025 economic and market forecasts, outlining where outcomes diverged from expectations while standing by several directional calls. He has also set out a cautious outlook for 2026, pointing to softer growth, rising unemployment and renewed volatility across financial markets.
Stephen Koukoulas said his most ambitious forecast last year was for aggressive interest rate easing from the Reserve Bank of Australia, driven by expectations of falling inflation and a weaker labour market. “At the start of 2025, I thought the RBA would be cutting 150 basis points because inflation would be low and unemployment higher,” he said. “As it is, I got the directional call right. We only had three 25 basis point interest rate cuts.”
He noted that as recently as October the RBA had been contemplating further easing, before stronger inflation data and signs of resilience in household spending shifted the policy tone. “For me, not a great call. I would have preferred another one or two cuts, but it’s reasonable. Three out of six.”
Bond markets were a clearer miss. Koukoulas had expected a sustained rally that would push 10-year yields down to around 3.75 per cent. “They started 2025 with a 10-year yield around 4.3 to 4.35 per cent,” he said. “By October they had fallen below 4.1 per cent, so I was feeling pretty happy.” That confidence faded after fresh inflation surprises, tougher central bank rhetoric and global market moves, including selling from Japan. “We finished the year at 4.75 per cent. I was wrong a long way out on that,” he said, describing current bond yields as extraordinarily cheap given domestic fundamentals.
Stephen Koukoulas // Pic X
Bond markets were a clearer miss. Koukoulas had expected a sustained rally that would push 10-year yields down to around 3.75 per cent
On currencies, Koukoulas was more satisfied. He had forecast the Australian dollar would recover towards US70 cents as the US dollar weakened. “The Aussie started the year under 62 cents and here we are at about 67 cents,” he said. “I’m really delighted with that call. An eight per cent rally is always a nice thing when you’re bullish.” He pointed to policy problems in the US as a key driver of dollar weakness, adding that while the target was missed, “getting the direction right is all you need to do in markets.”
Equity markets produced a mixed outcome. Koukoulas had expected the ASX 200 to fall towards 7,000 points. “It started at 8,200 and we traded at 7,350 in April,” he said. “It hit and exceeded my bearish target quite early.” The rebound later in the year was no surprise, he said, given improving global growth momentum and strength in US markets. “On that score, not a bad call.”
Looking ahead to 2026, Koukoulas expects Australia’s economy to lose momentum as the year progresses. He sees GDP growth running at around 2.5 per cent in the first half before easing to about 2 per cent or less in the second half as tight monetary policy and slower global growth take hold. Unemployment is expected to continue edging higher. “Another half a percentage point increase during the course of 2026 is the key forecast,” he said, citing weak signals from job advertisements.
That cooling backdrop should allow inflation to ease once temporary price pressures fade. “Once these administered prices wash out, I think inflation will ease back to around two to two and a quarter per cent by the end of 2026,” he said. With a weaker labour market, wages growth is likely to remain subdued at around 3 per cent, particularly in the private sector. “That wage price spiral some fear just won’t be there.”
Housing expectations have shifted sharply from last year. After wrongly anticipating price falls in 2025, Koukoulas now expects values to remain broadly flat in 2026, with some downside risk
On monetary policy, Koukoulas expects the RBA to finish 2026 with a lower cash rate. “I’m going for 50 basis points lower than where we start the year, down at 3.1 per cent,” he said. Any early rate hike, in his view, would be a mistake quickly reversed later in the year.
He remains constructive on bonds, predicting a rally that could pull 10-year yields back towards 4 per cent by year end, and even more bullish on the currency. “I see 75 cents, maybe even higher, by the end of the year,” he said.
Housing expectations have shifted sharply from last year. After wrongly anticipating price falls in 2025, Koukoulas now expects values to remain broadly flat in 2026, with some downside risk. “Higher unemployment is not good for house prices,” he said, adding that lower immigration and rising supply could ease demand pressures.
Equities, however, look vulnerable. “The ASX looks very exposed, linked to the US,” he said. “I think the US stock market is heading for a sizable pullback.” His expectation is for the Australian market to dip below 8,000 points at some stage during the year as valuations adjust.
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Economist @TheKouk reviews his 2025 forecasts & offers a cautious 2026 outlook. He expects weaker #GDP growth, a rising #unemployment rate & a potential #equity market pullback, while predicting further @RBAInfo interest rate cuts. #TheIndianSun
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