Recessionary fears are brewing.
Australia’s economy expanded by just 0.3% in the first quarter of 2026, on a seasonally adjusted basis, according to figures released by the Australian Bureau of Statistics (ABS) on Wednesday. Annual growth came in at 2.5%.
The weak results capture only the first month of the conflict in the Middle East, which erupted in March, raising concerns that further economic headwinds may still be ahead.
Furthermore, the figures prompted some market participants to question whether momentum in the housing market is beginning to fade, and whether the economy is edging closer to a recession.
"It wouldn't surprise me at all," Adele Andrews, director and broker at Melbourne-based Australian Property Home Loans, told Australian Broker. "We've got unemployment going up; we have obviously seen this massive slowdown of growth. "There's definitely a lack of confidence in the market. I've had clients who were going to buy properties and now they're not. The budget outcomes as well, which has probably further compounded what's going on.
"So there's not really too many positive signs in the market at the moment," she continued. "There's definitely a lack of confidence and there's definitely a lot of caution."
Mounting pressures are only adding to market anxiety. Global oil prices have surged, inflation remains stubbornly high, wages are climbing and interest rates continue to squeeze borrowing capacity, a combination that has intensified concerns about the economic outlook.
The Reserve Bank of Australia (RBA) has already increased the official cash rate (OCR) three times in 2026, taking the current rate to 4.35%. Meanwhile, the latest consumer price index (CPI) revealed that both headline inflation and trimmed mean remain elevated above the RBA's target band of 2% to 3%.
Further concerns emerged on Tuesday when the Fair Work Commission (FWC) awarded a 5.97% increase to the national minimum wage and a 4.75% rise for award-reliant workers, effective from 1 July. The decision fuelled speculation that additional rate hikes may be needed to contain inflationary pressures.
The labour market is also showing signs of softening. Unemployment rose in April to 4.5%, up from 4.3% in March. Taken together, the data underscores the challenge facing the RBA as it attempts to tame inflation without tipping the economy into a downturn.
Andrews also noted comments from RBA Governor Michele Bullock in March, when Bullock said the central bank doesn't "want to have a recession," but will do what it takes to "deal with" inflation.
"You'd hope it doesn't get to that," the broker said. "But it's certainly a bit of a troubling time and one where I think people are doing a lot less than what they usually would have, and certainly sitting on their hands more than making bold decisions. So it doesn't really point to a lot of positivity at the moment, that's for sure."
But not everyone is concerned.
In the Northern Territory, Darwin-based broker Janine Ashmore said business is booming.
"We're in a bit of a growth cycle," said Ashmore, cofounder and director of Bliss Home Loans. "The slowdown hasn't really affected us here yet. It's actually really positive. [Darwin] is still booming and the wages are higher than everywhere else and the cost of houses are lower.
"But in other states, I'm hearing there's a real slowdown," she added. "We're sort of bucking the trend."
Ashmore added that even looming tax changes targeting property investors have done little to cool the market, with returns remaining strong enough to offset the impact.
"It just doesn't bother them," she said. "Our returns are so high compared to the rest of the country."
Economists argue that the economy was already cooling before the conflict in the Middle East erupted. Still, Q2 data will provide a clearer read on the direction of growth and the impact of headwinds.
"The June quarter is going to be really interesting because not only will we get a clearer idea on how the economy is going, I think too, we'll understand more of the budget impact on a lot of other measures, particularly home loan lending," said Nerida Conisbee, chief economist at Ray White.
The economist added that the March data "was before all of this: before we had interest rate rise, before the conflict in the Middle East, before the budget. So it's not a done deal that we're heading to a recession."
