Australia to Rely on AI to Spur Growth as Global Tensions Deepen

Australia will rely on the rollout and development of Artificial Intelligence to drive economic growth over the next 40 years, a time when the global economy is likely to become even more fragmented and unpredictable.

Treasury’s 2026 Intergenerational Report released Monday said the “rise and adoption of AI is likely to support the achievement” of its long-term labor productivity growth assumption of 1.2%, a level similar to the 2023 report.

“Our advantages of the 2010s – Chinese commodity demand, education and tourism – will shift towards new advantages in renewables and critical minerals, strong institutions and strategic partnerships, and AI-enabled services,” Treasurer Jim Chalmers said in a speech at the Australian National University to unveil the findings.

The data center boom has been a rare economic bright spot in Australia, with Westpac Banking Corp. estimating it will be of similar magnitude to the liquefied natural gas expansion of the early 2010s. Yet in the near-term, it risks exacerbating supply constraints in the economy that have fueled inflation and forced the Reserve Bank to raise interest rates.

The report projected Australia’s average annual economic growth will slow to 2% through the mid-2060s from 3% over the previous 40 years.

The report highlighted that conflict and competition are intensifying. While economic openness will keep delivering growth, put downward pressure on inflation and drive productivity in Australia, countries and companies will need to balance supply chain efficiency with national security, it said.

“Future economic performance will rely on remaining open to the benefits of well-functioning markets, while guarding against the volatile impacts of geopolitical instability,” it said.

Chalmers said Australia’s fertility rate is set to “fall further and faster” than anticipated just three years earlier. The population, currently estimated at 28.1 million people, is expected to climb to about 39 million by the mid-2060s, down from an earlier projection of more than 40 million, he said.

The report highlighted that intergenerational equity pressures are intensifying “due to long-term challenges in housing, demographic change and other structural economic trends.”

It estimated that “if home ownership rates had remained at their 1981 levels, the most recent data available indicates around 250,000 more households aged 25–34 would own their own home.”