What global economic trends mean for directors

Moving into the second half of 2026, the Australian economy is navigating a snarl of crosscurrents, international and domestic. The former have dominated the year so far, but the importance of the latter should not be underestimated.

On the international front, two key forces have shaped the global story. First, there is the ongoing geopolitical disorder and geo-economic fragmentation that now characterises life in the “Kindleberger Gap” – that is, in a period marked by the absence of a stabilising global hegemon (named after economic historian Charles Kindleberger’s diagnosis of what went wrong in the interwar period when “Britain could not act as a stabiliser, and the United States would not”). The latest manifestation of modern life in the gap has been a second war in the Middle East in less than a year, with associated disruptions to global commodity markets, including oil, gas, fertiliser and petrochemicals.

Second, the build-out phase of an AI-driven technological revolution has lifted investment rates, augmented global trade flows and inflated share prices. Capital expenditure on semiconductors, data centre construction and supporting energy infrastructure has surged, with the five largest US hyperscalers (Alphabet, Amazon, Meta, Microsoft and Oracle) together expected to invest over US$1 trillion from 2025 through 2026. This spending boom has supercharged demand for a range of AI-enabling products such as chips, semiconductors and data transmission equipment, in turn stimulating international trade in those same materials.

The World Trade Organization estimates that last year, for example, trade in AI-enabling products alone comprised 42 per cent of all trade growth despite only accounting for one-sixth of global trade. AI-related exuberance has also dominated financial markets, contributing to elevated prices and compressed risk premia, plus periodic market spasms when investors get jittery about stretched valuations.

To date, those forces have tended to offset each other at the global level, with the headwinds for international activity generated by the Iran war met by the tailwinds blowing from the AI boom. That said, the positive demand shocks arising from accelerating AI investment risk worsening the inflationary impulse triggered by the Persian Gulf’s negative supply shocks.

On the home front

Meanwhile, both have significantly influenced the domestic economic environment. Australia, too, has been part of the global AI build-out, now affecting domestic investment numbers in significant ways. For example, the March quarter 2026 data on private new capex reported dramatic 96 per cent quarterly and 190 per cent annual increases in investment by the information media and telecommunications industry. Investment in new equipment and machinery by the sector jumped 196 per cent over the quarter to be up 431 per cent over the year. Likewise, according to the latest national accounts, increased spending on data centres was the largest contributor to overall growth, as total machinery and equipment investment recorded its greatest rise in 30 years.

In the case of the Iran war, higher energy prices and raised inflationary expectations earlier this year placed additional pressure on a central bank that had already tightened monetary policy even before the launch of Operation Epic Fury. With two further consecutive rate hikes following the outbreak of fighting, the RBA had fully unwound all of 2025’s policy easing by May this year.

Even with government policy offsetting the initial impact on fuel prices via temporary excise relief, higher prices and interest rates exacerbated the post-pandemic squeeze on living costs. One consequence has been deeply pessimistic levels of consumer confidence, with the April and June monthly readings from the Westpac-Melbourne Institute Consumer Sentiment Index among the weakest in that survey’s 50-year history.

That mix of sagging confidence alongside input cost pressures and an underlying inflation rate uncomfortably above target has left the future trajectory of monetary policy uncertain. At the time of writing, RBA watchers were divided as to whether further tightening would be required.

More positively, higher world prices for energy and gold have prompted big upward revisions to expected export revenues. The Department of Industry’s mid-year Resources and Energy Quarterly lifted its previous forecasts for resource and energy exports for 2025–26 by $22b to $405b, and for 2026–27 by $42b to $416b.