OECD downgrades Australia economic growth to 1.7%

• The OECD downgraded Australia's 2027 economic growth forecast by 0.1 percentage point to 1.7% amid surging global bond yields, energy shocks, and severe weather risks.
• Rising global bond yields have driven national debt interest forecasts past $42 billion annually by 2029/30, putting pressure on public finances and economic activity.
• Rising inflation projections of 4.5% in 2026 and potential El Niño agricultural disruptions threaten to prolong domestic economic headwinds.

The OECD downgraded Australia's 2027 GDP growth forecast to 1.7% as surging bond yields and commodity price shocks weigh on the outlook.

The revision contrasts with earlier momentum and projects Australian economic growth at 1.9% in 2026.

“Rising bond yields underline more than ever the need for enhanced efforts to contain and reallocate government spending, improve public sector efficiency and strengthen revenues to ensure longer-term debt sustainability and maintain the ability of governments to react to significant shocks,” stated the OECD Interim Economic Outlook report.

The report highlighted that interest payments on federal debt exceeding $1 trillion are forecast to hit $29.6 billion this financial year and exceed $42 billion annually by 2029/30.

Treasurer Jim Chalmers stated that the upcoming mid-year update will detail the damaging impact of higher bond yields on government budgets.

The OECD stated that rapid growth in artificial intelligence investments partially offset global conflicts, though elevated inflation forecasts of 4.5 per cent in 2026 and El Niño weather risks threaten future growth.

The organisation urged governments to cut debt levels and contain public spending to absorb future economic shocks.