Australia's Economic Slowdown and the AI Opportunity

If you are feeling financially depleted personally, and pessimistic about the economic outlook generally, figures released this week won't cheer your mood.

The OECD found Australia was one of 11 developed countries where the real minimum wage had fallen between April 2025 and April 2026.

Meanwhile, Deloitte Access Economics in its latest Business Outlook cut its forecast for growth in 2026–27, with the dismal message: "The economy is now expected to limp along at less than 2.0 per cent annual growth for the next two years."

This was followed by the International Monetary Fund's World Economic Outlook data projecting Australia's GDP growth to be 1.9 per cent this year and 1.7 per cent next year.

Australia's overall economic growth is slow, but at least it's in positive territory. However, that's held up by population increase. On a per capita basis, GDP went backwards in two of the past five quarters (March 2025 and March 2026) and was flat in a third (September 2025).

No wonder consumer confidence is low, and One Nation's tune rings loudly in the ears of voters who hear it reflecting their grievances.

The government would say, hang on a minute, it's not all bad. Business investment is strong. Unemployment is still very low. It would also point out that "talking down" the economy can play into "pushing down" the economy.

Nevertheless, the government can read the numbers, and one thing they tell us is that without refuelling that vital growth agent, productivity, we will stay in the doldrums.

Productivity knocking

Despite all the talk since the election about action to boost productivity, we need faster progress to improve our poor performance.

Yes, some reforms are in the pipeline, for example to remove obstacles and streamline approvals in the building sector and to reduce the regulatory burdens on projects.

But those looking for bigger, faster gains are inevitably turning their attention to artificial intelligence. At the government level, AI is receiving extensive attention from cabinet and ministers individually.

AI can, potentially, be the accelerant under big productivity gains. New data centres (not all involve AI but increasingly they do) are fuelling business investment. Australia is an attractive home for international investment in these centres because of its land and water, its uptake of technology, and the stability of its legal and political systems.

But AI also brings a mass of potential negatives (or fears of them). Data centres soak up vast amounts of energy and water, as well as producing noise and heat. Some communities are unhappy about them.

This new industrial revolution fires up its bright-eyed advocates, and comes with warnings from the worriers.

It's a bit like that in the federal ministry, too, where there's a spread of views about the rollout of policies and which stakeholders should have how much say in what's done.

Some characterise it as a sort of tug-of-war between the enthusiasts and the cautious.

Different views on AI

Former industry minister Ed Husic favoured overarching new legislation, but the government has gone down the more decentralised route, with ministers and regulators having carriage of AI in their own areas.

Assistant Minister for Science, Technology and the Digital Economy Andrew Charlton is seen by colleagues as something of an ambassador for AI. Although well down the formal pecking order, Charlton carries weight because he's highly qualified in economics and tuned into the AI sector. As cabinet secretary, he has a level of political access other assistant ministers would not.

Charlton is a strong promoter of AI but also mindful of the need for strict conditions, not least for maintaining its social licence.

Industry Minister Tim Ayres — who's Charlton's senior minister in the portfolio — is attuned to the opportunities AI presents and doesn't want Australia to miss out. But he comes from the union movement and has highlighted that unions (which are cautious about AI) should be "at the top table" in the rollout.

Employment Minister Amanda Rishworth is concerned about the fate of many workers. On Wednesday she released a report prepared by her department on "AI and Employment in Australia". One line in it neatly sums up where things are. "AI could reshape the labour market, but its effect on employment is highly uncertain." Bearing in mind we're in the first stage of this journey, the report found:

There is no evidence to date of broad labour market upheaval driven by Artificial Intelligence (AI) in Australia. Overall labour market conditions remain strong by historical standards, youth outcomes have mostly held up, and occupational reshuffling has not accelerated.

However, occupations more exposed to potential automation by generative AI have grown more slowly than other occupations. Between November 2022 and February 2026, employment in the most-exposed fifth of occupations grew by 5.6 per cent, compared with 9.5 per cent in the least-exposed fifth.

We find a small negative relationship between AI exposure and employment growth. For an occupation with AI exposure one standard deviation above average, our model implies employment was about 2 per cent lower by February 2026 than it would have been under its pre-ChatGPT trend.

The government in December released its National AI Plan. It was interpreted as "light touch" regulation, and reflecting the position of Treasurer Jim Chalmers. It was also light on detail, although it did include an AI Safety Institute and flagged expectations data centres would have to meet, which were subsequently released.

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Tech battles inform AI approach

AI can't have a set-and-forget policy. It has to be constantly updated as things develop, and hot issues must be addressed as they emerge.

Just now, there's much concern in the music industry and other parts of the arts and creative communities. Arts Minister Tony Burke is dubbed the "shop steward" for the musos. Creatives are particularly worried about their copyright being undermined. Attorney-General Michelle Rowland, who oversees copyright, is said to be disturbed by the agitation. The government believes the existing law on copyright is robust enough, but is ready to act if particular problems need attention.

The government is very aware of the need for Australia to stamp its sovereignty on AI policy. Perhaps influenced by its battle with the tech giants over the enforcement of the under-16 social media ban, it believes it can't allow "the tech bros to let it rip", as one source puts it. But it can't allow the country to fall behind the pack either.

Next week Anthony Albanese will give a speech on AI. It is expected to present a broad picture rather than all the nitty gritty. But it is being billed as showing the level of prime ministerial engagement in this area in which the government is trying to thread a course between huge potential and undoubted risks.