The South Australian economy grew strongly through 2025 and into 2026, but is expected to slow moving through 2026 into 2027, according to the latest Economic Briefing Report prepared by economists from Adelaide University’s SA Centre for Economic Studies (SACES).
A range of indicators show the South Australian economy expanded strongly over the past year. There was a surge in public investment, a recovery in household consumption, and better seasonal conditions for the farm sector.
South Australia’s labour market also performed strongly. Employment grew faster than the population, bringing the unemployment rate down. The unemployment rate remains near its lowest point since the 1970s and the underemployment rate is also low.
There are signs, however, that growth is slowing in 2026. Quarterly growth in aggregate spending has eased and unemployment has edged higher. Renewed cost of living pressures and tighter financial conditions are weighing on household and business spending and confidence.
The report found that rising domestic inflation pressures prompted the Reserve Bank of Australia to increase interest rates early in 2026 and that this is expected to slow domestic demand growth.
The supply-side shock from the Middle East conflict has also undermined growth in Australia and South Australia. Even so, the economy is expected to continue expanding, with modest employment gains and only a small rise in unemployment.
The international outlook is more uncertain than usual as it is unknown when peace and free trade will be restored in the Gulf region.
“The SA economic outlook, just like the national outlook, is affected by domestic inflation pressures and those pressures have been compounded by the conflict in the Middle East,” said Associate Professor Jim Hancock, Executive Director of Adelaide University’s SACES.
“The Reserve Bank has raised interest rates, and consumer and business confidence have weakened quite sharply in recent months. We expect households and business to take a cautious approach to spending and investment through 2026 and into 2027.
“Restoring stronger productivity growth remains one of the most important policy challenges facing Australia.
“Higher labour productivity would help reduce domestic inflation pressures while raising material living standards. Without it, reducing domestic cost pressures will require slower wages growth, an unwelcome prospect for Australian workers who are already feeling the pinch from rising prices.”
Key highlights from the Economic Briefing Report include:
Global Economy
- The global economy has proved more resilient than was feared when the conflict in the Gulf region broke out.
- Severe energy shortfalls have so far been avoided by means of stockpile drawdowns, supplier diversification and demand-curbing measures. Increased use of renewables over recent years has also made some economies more resilient to energy price shocks.
- The impact of the conflict has been uneven. Net energy importers and economies physically affected by the war have been hit hardest, while energy exporters outside the conflict zone and higher income economies have fared better.
- The AI investment boom, centred in the United States, has also boosted East Asian economies deeply embedded in global technology supply chains.
Australia
- Australia’s gross domestic product grew at a moderate pace through 2025 and 2026, recording its strongest annual increase since 2022. Stronger domestic demand was the key driver, supported by solid export growth. Imports rose strongly as demand flowed to overseas suppliers.
- Growth in domestic spending nationally has been driven primarily by the private sector, which is a welcome rebalancing after a decade in which public demand outpaced private demand.
- A recovery in business investment, led by spending on data centres, has underpinned the upturn in domestic demand. The high import content of data centre investment is one of the factors behind the recent surge in imports.
- Underlying inflation has risen. Domestic cost pressures have been compounded by the flow through of higher fuel costs to a broader range of goods and services. Of particular concern is domestically driven non-tradables inflation, which continues to run at 4.7 per cent, indicating price pressures extend well beyond the external oil price shock.
- Australian labour market conditions remain strong despite some slowing in early 2026. Employment growth did not keep pace with the working age population over the past year, but the unemployment rate has risen only slightly and is still low by historical standards.
South Australia
- Final demand in South Australia grew strongly through 2025 and into 2026, expanding well ahead of population growth.
- Demand growth in South Australia was boosted by strong public sector spending, including investment in major transport infrastructure, health and defence-related projects, and supporting enabling works.
- Household consumption spending has recovered from weak trends through 2023 and 2024. Labour income growth has been even stronger. Households are taking a cautious approach to their finances and the household sector has been saving more.
- The resurgence in inflation and the interest rate rises this year are now dampening household spending growth.
- South Australia’s private business investment eased in early 2026 but remains at a solid level by historical standards. The strength in data centre investment has been concentrated in New South Wales and Victoria to date, but South Australia may pick up more going forward.
- The South Australian labour market continues to perform strongly. Employment rose 1.6 per cent through the year to May. South Australia’s unemployment rate fell to 4.1 per cent, which was below the national rate of 4.4 per cent.
- SACES economists expect South Australia’s gross state product to grow by 1.5 per cent in 2026 and 2027. Growth will be supported by continuing public investment, a large pipeline of construction activity, modest household consumption growth, and a further recovery in broadacre crop production.
- Employment growth in South Australia is expected to slow to 1 per cent through the year to June 2027, not quite enough to keep pace with population growth. The unemployment rate is expected to rise to 4.5 per cent by mid-2027.
The SACES Economic Briefing Report is delivered to Corporate Members from the South Australian business, government and not-for-profit community. Media can reach out to Adelaide University’s media team to access the report, noting it cannot be distributed publicly.
Media contacts:
Associate Professor Jim Hancock, Executive Director, South Australian Centre for Economic Studies, Adelaide University. Mobile: +61 419 039 046. Email: jim.hancock@adelaide.edu.au
Lara Pacillo, Media Officer, Adelaide University. Mobile: +61 403 659 154. Email: lara.pacillo@adelaide.edu.au