After 2025 saw the US government put tariffs on islands inhabited exclusively by penguins, can the economy of 2026 be expected to be any calmer?

"Follow the money," says George Tharenou, chief economist for Australia at investment bank UBS, after strong 2025 gains in assets like shares.

"There's been a degree to which both institutional investors and 'Mum and Dad' investors are just pouring money into asset markets to not miss out. This concept's going to continue to be the main driver of growth until something comes along and breaks that sentiment."

George Tharenou is the chief economist for Australia at mega fund-manager UBS.  (ABC News: John Gunn)

Breaking that could be Reserve Bank interest rate rises, a deflation of the AI bubble, on-going trade tensions or a huge number of other elements.

Having examined the 2025 economy the ABC spoke to five of the nation's leading economists about their predictions for the coming year.

The discussion centred on four key topics that had defined that year and look set to shape the economy of 2026:

• The impact and potential expansion of the Trump tariff regime that has altered world trade
• An interest rate environment that has rapidly changed from a likelihood of one-to-two more cuts to official rates … into questions about when the Reserve Bank will lift rates and make the cost of money higher
• How share markets will fare as rate cuts become less likely, and as questions keep rising about the cost of the AI 'build-out' of data centres and factories, and whether all the key players can be billion-dollar winners from the race
• Developments in artificial intelligence will hit business far beyond the stock price of seven 'Magnificent' US companies, but in the way people do work and what customers do and don't want from the technology

The focus on artificial intelligence will continue says Betashares chief economist David Bassanese.

"The key question for markets is 'bubble or not?'"

Chief economist at Betashares David Bassanese says the 2026 economy will focus on artificial intelligence.  (ABC News: John Gunn)

Trump tariffs set to calm to new normal

Chief economist at 'Big Four' bank NAB, Sally Auld believes we're through the frenzy of the frantic changes that US President Donald Trump wrought on the global trading framework in 2025, and the economic instability it injected across the world.

NAB chief economist Sally Auld believes we are through the frenzy of the frantic changes that US President Donald Trump wrought on the global trading framework in 2025.   (ABC News: John Gunn)

"I think where we're sort of at a point where there's a little bit more certainty around the Trump administration's ambitions as to why they're using tariff policy and what that's doing," she says, noting there are still court actions ongoing about the taxes.

She sees the US economy rolling on like a replay, "not too dissimilar from where it was in 2025".

That's important for Australia.

While our economy is not as closely reliant on US trade as many others, we make a substantial amount of our money from exporting commodities like iron ore, gold and wheat that are subject to global factors.

**"**Australia's growth prospects are probably in an absolute sense and also in a relative sense pretty good," she adds.

"The economy is past the low point in growth. Gross domestic product (GDP) growth has been picking up nicely … so in our forecast we get into the 'low twos' (2 per cent) for 2026 for Australian GDP growth."

The other element of the US tariff plan is that it is subject to domestic political factors — the desire for the Republican Party to retain seats in key elections due this year.

"I think we've seen peak tariff from Donald Trump," says Shane Oliver, chief economist at AMP.

Shane Oliver, chief economist at AMP believes we have seen the peak of tariffs from US President Donald Trump.    (ABC News: Daniel Irvine)

"He's now realised that it is costing Americans. There's absolutely no evidence that foreign exporters to the US are paying the tariffs, import prices to the US are little changed from where they were a year ago.

"That means (suppliers) are not lowering their prices. The people paying for the tariffs are US importers or US consumers."

If that starts to hurt, politically, everything can change.

Interest rate moves to affect millions

Around one in three Australians has housing debt, the vast majority on variable interest rates that mean we are substantially exposed when the Reserve Bank moves the cash target rate that banks use to set the price of money.

The minutes of the most recent Monetary Policy Board that sets the rate show the board "decided unanimously to leave the cash rate target unchanged" at 3.60 per cent. (AAP: Dan Himbrechts)

Around one in three Australians have paid off their housing. Another third rent where they live, many of the dwellings funded by outstanding mortgages that have repayments that fluctuate with interest rate changes.

The minutes of the most recent Monetary Policy Board that sets the rate show the board "decided unanimously to leave the cash rate target unchanged" at 3.60 per cent.

But more than that, it started ringing the alarm about an inflation rate that has busted back out of the so-called 2 to 3 per cent 'target band' the central bank likes to keep it in.

"Members noted that the economy appeared to be operating with a degree of excess demand and it was not clear whether financial conditions were sufficiently restrictive to bring aggregate demand and supply back to balance," they wrote.

Decoded, that means the economy might be over-heating, and interest rates aren't high enough to slow price rises at that rate that makes the board happy about the 'balance' in the economy.

"Members discussed the circumstances in which, should these trends persist, an increase in the cash rate might need to be considered at some point in the coming year."

And that's exactly where George Tharenou already was.

"The problem lies in the fact that the fall in inflation at the start of 2025 was only temporary, but already it's picked up quite quickly, even though the recovery of activity's been modest," he says.

Over the past decade, 40 quarters, the Reserve Bank has hiked and cut interest rates 13 times (each way) as it tries to balance the economy.

The inflation rate has only been in the target band for eight quarters, just 20 per cent of the time.

"So I think begrudgingly the RBA is going to shift towards raising the cash rate by the middle of next year," says Mr Tharenou.

His most likely scenario is a "modest tightening cycle" with two hikes of 25 basis points each.

Shane Oliver doesn't think the central bank needs to lift rates but acknowledges that a lot of things must go right to avoid it.

"It is possible we'll get another rate cut. But it's not something we're particularly confident about and the risks are sort of swinging back towards the other direction."

Independent economist Nicki Hutley says unemployment is the figure to watch, with the rate now nearly a full percentage point higher than it was at the lowest point after the COVID pandemic.

Independent economist Nicki Hutley says unemployment is the figure to watch. (ABC News: John Gunn)

"The RBA would consider that the labour market is still very tight. So we're very tightly poised between making sure that we keep the gains from inflation and push those a little bit further without risking some significant rises in the unemployment rate."

That means, for her, no more relief for people with large housing debts.

"I think there's virtually no chance of another rate cut barring something crazy happening on the international stage," she says.

Robots and algorithms to power or plough retirement savings of Australians

Compulsory superannuation payments take 12 per cent of what employees earn and hold it for them until, for most people, the age of 65. 

Because of that, Australians are both heavily invested in domestic and international share markets and are set to have the second-largest pool of retirement savings in the world.

It means ordinary workers are, in many ways, exposed to the up and downsides of the massive explosion in artificial intelligence and the billions of dollars being spent by a small number of companies seeking to dominate the sector.

But the market movements might come down to a more practical factor: politics.

That's because 2026 is the midterm election year in the US, Shane Oliver of AMP reminds us.

2026 is the midterm election year in the US. (AP: Alex Brandon)

Essentially the 'lower house' of the US government (called Congress) and a portion of the upper house seats (the Senate) are up for grabs.

"History tells us that in the four-year presidential cycle, this is actually the weakest year," he says.

"Typically in a midterm election year in the US, the average top-to-bottom fall out of US shares — going back to 1950 — is about 17 per cent."

That would wipe out all of 2025's gains on the flagship Dow Jones index (up 14 per cent) and much of those on the broader S&P 500 (up 17 per cent) and the tech-focused Nasdaq (20 per cent).

Beyond the potential market impact, NAB's Sally Auld sees another element that will feed into the economic picture of 2026.

So much money is being spent and committed by tech companies that US gross domestic product essentially has a floor under it.

The consensus estimate among Wall Street analysts is that the key group of AI giants will make $US527 billion ($785 billion) in capital expenditure (called capex) in 2026, a figure that's jumped from an estimate of $US465 billion just a few months ago.

"It's helping to prop up equity markets and earnings growth in that sector has been pretty solid, but it's also having an impact on the real economy and I think that's one of the reasons that we've seen this underlying resilience in the US economy," says Ms Auld. 

The robots are coming, but probably not the way you think

The amount of money being spent is astronomical.

But so are the potential benefits in areas like medical research.

Independent economist Nicki Hutley notes the immense potential beyond the current surface uses of AI — "plan your next trip to France or write a birthday poem for your grandma" — into developments that will boost productivity, unlock knowledge and create value.

"How do we optimise electricity grids? How do we optimise transport in congested cities? There are these potentials for absolutely game-changing technology using AI, and that's what I'll be looking for.

"Where are these trends emerging that are really going to shift the dial for the economy, for productivity, which is so much needed in this country and around the world?"

It's one of the big questions for 2026 and beyond.

What's ahead for 2026? Buckle your seatbelt

The US president can move markets, and shake governments, with a single post on social media.

But David Bassanese from Betashares is less concerned about that in 2026.

**"**I think the issues with regard to Donald Trump will start to die down, I think markets are sort of getting used to his erratic outbursts," he says. 

"Ultimately I think they realise he's not going to rock the boat too much if it does risk the economy."

AMP's Shane Oliver thinks AI has "further to go" in the new year.

Australia doesn't have a lot of companies deeply invested in AI, but our strong economy should pull us through.

_"_I think our share market will will bask in the glow of what's going on in the US, or at least do reasonably well," he adds.

Sally Auld of NAB is measured on the broad outlook, with plenty of challenges ahead: "I think it's just going to be another captivating year."

Nicki Hutley thinks we need to strap in for a bumpy ride.

Asked to summarise the year ahead in a word, she stumps for: seatbelts.

"As in 'tighten your seatbelts'. The other word I probably use is 'uncertain', but I'm sick of using the word uncertain. The better word, actually, is just 'risky.'"