Australian Industry Outlook for 2026

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Australian Industry Outlook for 2026

Australian industry had a slow and unsteady 2025, as weak business conditions at home and major upheaval abroad dragged on performance. As industry leaders prepare for 2026, one issue dominates their thinking: managing the rising costs of doing business amid subdued economic conditions. 

Since 2012, Australian Industry Group has annually surveyed business leaders from across industry. These sectors – which include manufacturing, construction, technology and supply chain and technical services – provide the industrial foundation for national prosperity. This report, based upon responses from 225 senior leaders, provides critical insights into how leaders anticipate the coming year. 

Industry leaders go into 2026 with one big worry on their minds: rising business costs. While economic conditions have slightly improved over the last year they remain subdued by historical standards. However, cost pressures on business are still growing, posing difficult challenges that are reshaping business strategy.

 

Key findings of the 2026 survey

Rising costs and regulatory burden weigh during slow economic conditions

Australian industry leaders expect another mediocre year in 2026. 40% expect business conditions to be weaker than 2025, while only 38% expect an improvement. While sentiments have improved slightly over the last year, they remain at some of the lowest levels seen in the thirteen years of this survey.   

The Australian economy is recovering but only slowly. The leaders’ outlook for 2026 is net positive for revenue and employment growth, and strongly positive for technology investment. However, rising costs will continue to put pressure on margins, and sentiments for growth and investment remain below average.    

Cost pressures on business have returned. The return of inflation augurs poorly for business. Expectation for input and energy prices have risen to some of the highest levels on record, while wages pressures are identified as the top negative factor on business. Many leaders do not expect these costs to be recoverable through pricing given subdued market conditions. 

Industry plans to invest in technology to meet rising cost pressures. Tech investment intentions are high and rising, with the aim of improving business processes and efficiency. But other forms of non-tech investment – such as training, conventional capex and R&D – are weakening in a persistently low-growth, high-cost business environment. 

Government regulation is holding recovery back. 37% of leaders cite tax burden, and 33% other forms of compliance burden, as a leading negative impact on their business. Payroll, company and insurance taxes are identified as major tax pain points. Overly complex and excessively burdensome regulatory and tax regimes are adding to cost pressures at a time business can least afford it. 

Workforce shortages have improved, but skills remain a perennial problem. The number of leaders experiencing workforce shortages fell from 75% to 66% in 2025, mostly due to easing conditions at the lower-skilled end. Higher-skill shortages remain acute, particularly for the growing construction sector. Expectations are that skills shortages will persist throughout 2026. 

Growth strategies will focus on both product and process. Most industry leaders intend to introduce new products and services and/or improve their current offerings in more competitive markets. Business process improvement – powered by tech investment uplifts, potentially involving AI – are high priorities to reduce cost and maintain a competitive edge. 

Leader sentiments – markets positive while operational and cost constraints persist

The Industry Outlook Survey invites industry leaders to share their optimism and concerns for the year ahead. This open-ended question highlights key factors driving or hindering business growth in 2026. 

Responses are organised into a set of factors, relating to all aspects of business operations: demand outlook, market opportunities, costs, industrial relations, skills, and technology.  

Leader sentiments for 2026 are mixed, with eight of the eleven factors returning net negative scores. Most factors showed a mild improvement on their 2025 results, but some – particularly around uncertainty and growth opportunities – have declined over the last year.  

• Growth opportunities (+45 net balance) were strongly positive, albeit reduced on last year’s very optimistic (+76) score. While leaders note a positive demand outlook for 2026 (+14 net balance), after several years of weak economic conditions optimism regarding the scope and scale of future business growth has moderated. 
• Uncertainty over the economic outlook (-70 net balance) has intensified and remains strongly negative. Nearly all (83%) citing uncertainty viewed it as detrimental to their business. Among the issues identified, inflation, high interest rates, policy instability in Australia and international market and policy volatility were all cited as contributing factors.  
• An area of strong and rising optimism is technology and innovation (+74 net balance). The perceived opportunities arising from new technology capabilities is accelerating, as new digital technologies (including but not limited to AI) achieve greater maturity and business penetration.  
• Costs and wages (-83 net balance) were similar to last year and strongly negative, reflecting entrenched expectations of high inflation. Energy (-86 net balance) also deteriorated reflecting falling and negative confidence in the reliability and affordability of energy supplies.  
• Supply chains (-62 net balance) have improved materially compared to last year (-95). Despite improving performance, leaders remain cautious about uncertainty for tariffs and other international conditions. 
• Amongst workforce factors, industrial relations (-44 net balance), skills shortages (-53 net balance) and labour supply (-62 net balance) were all negative. However, workforce factors also show improvement over last year, as the labour market has gradually eased and skills shortages soften.
• Sentiment for regulatory & compliance (-97 net balance) remains the strongest negative area. Business leaders express deep concerned both about growing regulatory burden, and that there is a limited sense of achieved progress from policy reform efforts.

Overall, business leaders’ sentiments for 2026 are largely the same as 2025. Market factors are positive, while operational and cost factors are negative. The primary change has been improved perceptions on the technology as a positive for business growth, and reduced concerns regarding workforce constraints.  

The excitement surrounding the potential of technology over the last year is reflected in the growing belief that new opportunities, particularly from artificial intelligence, will have bring major benefits to business productivity. 

However, the overall balance of sentiment remains firmly negative overall. Cost pressures are expected to remain acute for wages, inputs and energy, while regulatory burden remains the top business constraint. While there is an expectation that workforce shortages will ease as the labour market softens and technology capability increases, skills and total labour supply persist as a drag on operations.  

Why have industry leaders’ sentiments for the business conditions and the economy not meaningfully changed over the last twelve months? A deeper look at the data reveals the underlying pressures which leaders identify as continuing to constrain business performance. 

Business conditions – outlook improves, but cost pressures continue to mount 

Industry leaders’ outlook for 2026 signals persistent challenges despite some signs of recovery. While there is modest optimism for revenue and employment, overall sentiment remains weak compared to historical norms, reflecting ongoing structural pressures. 

When assessing the indicators of future business health, leaders report: 

• Expectations for overall business conditions (-2 net balance) improved materially on last year (-14) but remain slightly negative. This indicates that leaders see economic conditions recovering over the coming year, but remaining low compared to normal levels in Australia. 
• Revenue (+22 net balance) and employment (+15 net balance) outlooks are strongly positive, suggesting cautious confidence that demand conditions will improve. Expectations for employment growth continue to ease from the high hiring levels seen during the post-pandemic era. 
• Expectations for gross profit margins (-2 net balance) remain the same as 2025 and mildly negative. Given the positive score for revenue growth, this reflects an expectation that cost increases are likely to consume most of any revenue uplifts achieved in 2026. 

Despite a mild improvement, these scores remain some of the lowest recorded in the history of this survey. We need to go back to 2013 and 2014 – when the high growth rates associated with the mining boom were unwinding – to find similar levels of leader sentiment. It is also the second year in a row of very subdued outlook, suggesting that expectations for weak conditions are becoming entrenched amongst leaders. 

The reasons for this subdued confidence are revealed by the factors identified as the major business inhibitors for the year ahead. Three factors dominate: 

• Cost pressures remain the most significant inhibitors for businesses. Wage pressure was ranked first or second for 34% of respondents, while increased costs were cited by 32%. Despite some easing in inflation and wage growth, both remain elevated and continue to weigh on business performance. 
• A lack of demand was ranked first or second by 29%. While expectations point to a slight improvement in demand conditions in 2026, this recovery is anticipated to be modest. Weak demand therefore remains a key challenge for businesses. 
• Workforce shortages were cited by 25%, a slight improvement on 2025. This reflects some labour market easing, as well as lower reported intentions for employment growth. 
• Regulatory burden was identified by 24%, a slight deterioration. The specific regulatory factors vary between businesses.

This data points to a collision between supply side constraints and weak demand side opportunities. Market conditions are expected to improve somewhat in 2024, but the benefits will be offset by persistent cost, workforce and regulatory burdens.  

Costs and pricing – inflation and margin pressures are rising again into 2026 

After rising sharply following the pandemic, inflation eased throughout 2023 and 2024. However, the return of inflationary pressures in late 2025 has seen leaders expect another bout of price rises in the coming year: 

• Input prices (+78 net balance): A large majority of businesses anticipate further increases in input costs in 2026, with the indicator rising by 15 points. This is the highest score for input price expectations recorded in the survey, equal to those seen in the high inflation years immediately following the pandemic.  
• Energy prices (+83 net balance): This also rose again for 2026, and has returned to the levels seen during the surge in energy prices in 2022. Where previous spikes in energy prices reflected international market dynamics, these expectations are grounded in concerns over Australia’s energy systems to deliver energy reliably and affordably to industrial users.  
• Sales prices (+39 net balance): This indicator eased slightly for 2026 and has fallen to levels seen the before the pandemic, indicating fewer businesses intend to raise prices.  

The persistence of high and rising expectations for input and energy costs indicates that inflationary expectations have become entrenched amongst business leaders. These levels remain far above historical levels, indicating that industry leaders do not expect a return to moderate inflation in the near term. 

Expectations for pressure on business margins have also grown. The number of businesses expecting input and energy costs rises is double those expecting to raise their sales prices, The gap (39 points) is the largest ever recorded in the history of this survey, indicating that much of these inflationary pressures will be worn on balance sheets rather than passed on to customers. 

To respond to these inflationary and margin pressures, business leaders intend to focus on efficiency and commercial relationships:  

• The top cost management strategy is to improve operational processes (36%). By improving in-house efficiency, this enables a business raise productivity and alleviate margin pressures. 
• Changes to commercial relationships are also intended, including renegotiating supply contracts (31%), sourcing new local suppliers (21%) and sourcing new foreign suppliers (19%).   
• Fewer businesses intend to build inventories than last year (12% vs 22%), reflecting improvements in supply chain performance and a lower need to run buffer stocks.  
• A sizeable minority intend to in-house some production (19%). This is a significant step up on last year (6%), and reflects businesses attempting to exercise stronger cost control by moving some elements in-house. 

The consequence is clear: supply-side pressures remain widespread and deeply rooted, while demand-side weakness limits the ability to offset these costs. This combination is expected to keep operating margins under strain and weigh on profitability throughout 2026. 

Investment – confidence in technology reshapes priorities towards productivity 

Overall, industry leaders enter 2026 with a cautious but constructive outlook on investment. While optimism persists in some areas, the trend toward restraint continues as businesses recalibrate priorities to navigate cost pressures and uncertain conditions. 

The Australian Industry Group Industry Leaders Survey tracks intentions across four major investment categories (Chart 6): 

• Technology (+34 net balance): Technology remains the leading investment priority, with 49% of businesses planning to increase spending. This marks an improvement on 2025 and is the only investment category rising in this year’s survey. 
• Staff training (+15 net balance): 40% of businesses plan to maintain current training investment, while 37% intend to increase spending. This indicator has been sharply declining since a peak immediately after the pandemic but remains positive. 
• Research & development (+7 net balance): R&D investment intentions remain flat, with 25% of businesses planning to increase spending and 18% planning to reduce. R&D intentions have been subdued for three years now and remain below their long-term levels. 
• Capital expenditure (non-tech) (0 net balance): Non-tech capex intentions fell by 5 points to neutral. While 22% of businesses intend to increase capex, an equal share plan reductions. This is the lowest score recorded outside of the pandemic-affected year of 2020. 

Overall, this reveals a slight pull back in investment intentions alongside a recalibration towards technology spending for 20267. Training investment growth is moderating as labour supply issues ease, while capex and R&D intentions remain flat. Technology is bucking the trend as a greater number of businesses look to technology to improve the efficiency of business processes.  

This technology-for-productivity logic is further revealed in the functional priorities for business investment: 

• Business development (59%) and process improvement (50%) dominate as the top-ranked priorities for 2026. These changes highlight a tactical shift towards initiatives that generate immediate revenue and enhance operational efficiency. 
• Technology uplifts – both for ICT (23%) and non-ICT (14%) technologies – also rank highly. Together (37%) technology is ranked third. 
• Conventional capital expenditure (18%) has fallen from last year, while R&D remains the lowest ranked priority (11%). This reflects a focus on near-term productivity gains. 
• Staff training has also declined (21%) as workforce constraints ease but remains moderately ranked. 

Overall, this suggests the focus of business investment has shifted from longer-term growth to shorter-term productivity enhancements, design to manage cost pressures in an environment of modest market growth. 

Business pain points – workforce, tax, and regulation dominant concerns 

To understand how leaders view business constraints relative to each other, we asked them to rank the factors they believe have the greatest negative impact on their operations. The results show a clear ranking of challenges, led by wage costs, tax burden and regulatory complexity. 

• Rising wage costs remain the top concern, with 50% of respondents ranking it as their first or second priority. This reflects the compounding effect of tight labour markets and wages growth which exceeds underlying growth in business revenues. 
• Tax burden is cited by 37% of businesses. This spans company tax and other forms of business taxation, such as payroll, insurance and duties. Both the level of these taxes and the complexity of their administration were identified as barriers to growth. 
• Compliance burden was identified by a third of businesses and covers forms of complexity and cost burden imposed by (non-tax) regulatory systems. Sentiment regarding compliance burden is highly negative and is one of the few areas which has not improved for 2026 relative to 2025.  
• Workforce shortages were nominated by a third of businesses, with a particular focus on skilled roles. Leader sentiment regarding workforce shortages has improved this year as the labour market has eased, seeing its fall towards the middle of the ranking. 
• Energy costs (27%) and supply chain disruptions (18%) round out the list, with supply chain easing compared to previous years. These challenges tend to impact a smaller number of businesses, and while low ranked overall are frequently cited as very serious for those which confront them. 

There are also key industry differences in how leaders report business constraints:  

• Manufacturers identify energy costs as a higher ranked problem than other industries, reflecting the industry’s dependence on gas and electricity inputs. 
• Service sector businesses report higher compliance burden impacts than others, reflecting the complex regulatory schemes for many services across consumer and industrial sectors. 
• Constructors face the greatest impact from workforce – both wages and shortages – factors, reflecting the more labour-intensive nature of the construction process. 

These results show that managing cost pressures remain the dominant concern for 2026. Workforce and tax pressures are universal, while the impact of compliance and energy vary by industry and their relative exposure to these pressures. However, all factors contribute to the cost base – whether direct or indirect – at a time when business margins are under pressure and growth opportunities remain modest.  

The subdued investment intentions reported in the survey reflect these cost headwinds, as businesses seek to focus on deliver productivity uplifts to help manage these cost pressures.  

Business taxation – company, payroll and insurance taxes stifle investment 

In this year’s Industry Leaders Survey, we included a special panel on the impacts of tax on business operations. With tax burden ranked as second highest negative impacts on business, precisely which aspects of the tax system are causing the greatest difficulties for investment and growth? 

Three elements in the Australian taxation system stood out as being especially impactful for business: 

• Payroll tax, which 71% of leaders cited as an impact on investment and 74% on their employment decisions. These are state government taxes and are typically levied at around 5% on payrolls exceeding $1.5 million p.a. Payroll tax raised $39 billion in 2023-24. It acts as a strong disincentive to job creation and inhibits investment by adding cost and complexity to business expansion. 
• Insurance taxes, impacting 74% of business for investment and 46% for employment decisions. These are also state government taxes applied to insurance premiums, generally levied at around 10% with wide variation in treatment rules. Insurance taxes raised $9 billion in 2023-24. Insurance taxes weigh heavily on investment by raising the cost of (often mandatory) insurance coverage. 
• Company tax, impacting 68% of investment and 53% of employment decisions. This is a federal tax, levied at 35% on small and 30% on other businesses income less allowable deductions. Company raised $144 billion in 2023-24. It structures investment decisions by raising the ‘hurdle rate’ of financial returns which a proposed projects needs to deliver before investment can be approved. 

Other taxes have relatively less impact on business decisions. The least impactful was the GST, a value-added tax applied to all sales transactions. Land, vehicle and stamp duties also had lower scores. It is primarily payroll, insurance and company taxes which structure business investment and employment activities. 

There has been considerable debate over as to how tax reform can be used to raise investment rates in Australian industry. The reform priorities of industry leaders are instructive for prioritising such efforts: 

• 55% nominated reducing payroll tax as a top reform priority. While the company tax burden is three times higher, payroll tax is especially pernicious in its penalising of job creation. Complexities in complying with different state rules also impose an outsized compliance burden. 
• 50% cited reducing the company tax rate. It is the largest source of tax burden (accounting for around half of total business taxation), and effective rates in Australia are significantly higher than most other OECD economies, reducing our international competitiveness for new investment. 
• 28% cite simplifying company tax rules. There is significant complexity in how business income is treated, and how deduction rules are applied. Leaders report both high compliance costs, as well as distortions to investment decisions which need to be optimised for company tax rules. 

Surprisingly, introducing new deductions – for special types of investments and/or capital expenditure – were rated significantly lower as a tax reform priority. This is significant as proposals for such deductions have been dominant in the debate over business tax reform. This data suggests a more straightforward reform path, focused on simplifying and lowering the key payroll and company tax systems, would deliver a stronger and more impactful uplift on business investment levels.  

Workforce shortages – easing slightly but constructors anticipate growing pains 

Workforce shortages remain a central challenge for Australian industry. While there is some evidence that shortages are easing from their post-pandemic peaks, they remain a particular concern amongst higher-skille occupations and in the growing construction industry. 

Around one third (67%) businesses reported being affected by workforce shortages in 2025, down from the three quarters (75%) afflicted in 2024. This reflects an easing of the labour market over the last year, which has pulled back slightly from record-level tightness. 

The composition of workforce shortages is changing, and is gradually returning to its longer-term path of primarily affecting higher-skilled occupations. The number of businesses reporting lower-skilled shortages fell from 52% to 35%, accounting for most of the easing. Reported rates for higher skill roles fell only marginally (from 60% to 55%), indicating that skills shortages remain persistent even as overall labour shortages ease. 

However, industry leaders do not anticipate further relief from workforce shortage pressures in 2026. Expectations are for very mild easing at the higher skilled level (52%), and very mild increase at the lower skilled level (37%) over the coming year. Overall, slightly more expect to be affected by shortages in 2026 (69%) than in 2025 (67%).

There are also marked differences between industries in expected rates of shortages: 

• Manufacturers report medium levels of expected shortage, with rates of 44% for lower- and 54% for higher-skilled occupations. 
• Service sector businesses expect lower shortage impacts, with a similar rate (46%) for higher-skilled occupations but a much lower rate (28%) at the lower skilled end.  
• Constructors report extremely high rates: 69% for lower- and 78% for higher-skilled occupations. 

The very high shortage expectations amongst constructors reflects a combination of two factors. One is the very pronounced shortages afflicting construction trades. Every construction-specific occupation is currently listed as in national shortage by Jobs & Skills Australia, the only industry to face universal shortages. A second is an expectation for continued growth in output in 2026, as the public infrastructure works pipeline continues while house building is set to expand.  

This indicates that expectations for ongoing workforce shortages – particularly at the higher skilled level – have become entrenched amongst industry leaders. While the worst of the post-pandemic shortages are now over, reported shortage rates remain high and are not expected to diminish any time soon. As 33% of leaders cite workforce shortages as top-ranked negative impact factor for their business, it speaks to the pernicious impacts of workforce constraints on our industrial potential. 

Growth strategies – consolidation and digital channel expansion lead 

Industry leaders view strengthening market offerings as the primary driver of business growth in 2026. Just over half (54%) rank improving sales of current products and services as their first or second strategy, while introducing new products and services drops back to roughly one-third (32%).  

Growth ambitions remain concentrated in the domestic market. Developing new Australian markets is nominated by nearly one-quarter (23%) while new international markets are selected by only 13%. Ongoing global policy uncertainty, exchange rate volatility and risks around trade disputes continue to tilt preferences toward local customers, where demand and execution risks are seen as more manageable. 

The focus on technology seen this year also affects sales strategies, with increasing online capability and marketing is selected by 20% (up from 14%). Businesses are prioritising tech-driven customer engagement improvements that can deliver nearterm revenue uplifts without the heavier risk profile of major investments. 

Firms show limited inclination to expand headcount. Only 9% intend to increase employment as part of their growth strategy, up slightly from 7% reflecting ongoing labour market constraints and an operational pragmatism that growth must be achieved by utilising the existing workforce more effectively. 

Capital plans remain restrained with 6% citing increasing investment as a key driver of growth similar to 2025 and consistent with the soft trajectory in investment intentions over recent years and subdued sentiment about future business conditions. 

About the Industry Leaders Outlook Survey 

Australian Industry Group has conducted the Australian Industry Leaders Outlook survey annually since 2012. The survey asks leaders in industrial businesses about their experiences during the past year, and their expectations for the coming year. Its questions cover business conditions, performance, inhibitors, investment and growth strategies. 

The 2026 Industry Leaders Outlook Survey was administered in October and November 2025. Responses were received from leaders of 225 private sector businesses across Australia. Collectively, these businesses employed 58,335 people (approximately 0.4% of Australian employment) and had aggregate annual revenue just over $41 billion in 2025 (approximately 1.1% of Australian business revenue). 

All Australian states, and all major Australian Industry Group member sectors, are represented in the 2026 survey. Nine industrial sectors were included: construction, manufacturing, mining services, wholesale trade, transport, utilities, professional, technical and scientific services, administrative services and other services. This group collectively accounted for 42.6% of Australian industry value-add in 2024-25.  

Data presented in this report is weighted by industry (based on ABS estimates of their value-added contribution to IVA in 2024-25) to adjust the sample to match the underlying population of businesses in the nine target industries.  

Summary statistics of the survey sample, target population and weighting coefficients are below.

Australian Industry Group Research & Economics

economics@aigroup.com.au