Australia’s economic pessimism is about more than numbers

Australia’s economic mood has soured – optimism has dropped to a historic low, driven not by recession but rather by a creeping sense that the foundations of four decades of growth are giving way. Australia’s economic success was underpinned by a growing global economy, expansion of international trade, rising incomes in Asia, security from major power conflict, and relatively decent governance by global standards. Growing numbers of Australians are now starting to believe these conditions won’t last.

And there is evidence they’re right.

Australian’s purchasing power is not what it used to be. Real wages have been falling since 2021 (Opens in new window). This is expected to continue through 2026 as the energy shock from the Iran war ripples through the global economy. Labour productivity has also gone backwards since 2019, a sign that real wages are unlikely to recover soon. By these metrics, Australia is one of the worst-performing countries in the OECD, a group of comparable economies often referred to as “the rich country club”.

What this means in practice for the everyday worker is that Australians need higher wages to live comfortably. Where once reaching six figures – a salary of $100,000 – guaranteed a comfortable life, it doesn’t necessarily do so anymore (Opens in new window).

So it is not surprising that the 2026 Lowy Poll (Opens in new window) found that a record-breaking 60% of Australians are pessimistic about the prospects for Australia’s economic performance in the next five years. This is higher than at any other time in the poll’s history, including the Covid-19 pandemic and the global financial crisis.

Australians are not alone in feeling this way. People are feeling similarly pessimistic about the economy in the United Kingdom (Opens in new window). In December 2025, more than half of households in Japan felt their circumstances had worsened (Opens in new window) compared with a year ago. And throughout the European Union member states, almost half of respondents (Opens in new window) said they held negative views of their national economies and expected them to further deteriorate over the next year.

Americans have been negative (Opens in new window) about the economy since June 2021, and the number who rate current economic conditions as “poor” jumped since the start of the Iran war.

A strong sense of economic pessimism is widespread in the wealthy, developed world, and has been for some time; Australia is merely catching up.

This cannot be the whole story, however. Real wages have been falling for years. Of course, households might be hitting breaking point only now as buffers melt away. But an alternative explanation is that Australians are very attuned to the world Australia inhabits.

Another first for the Lowy Poll is that a majority (Opens in new window) of Australians feel unsafe in the world today. A global economic downturn is the second-highest perceived threat to Australia, behind cyberattacks from other countries.

Australians have heard for decades that the country’s prosperity is tied to an international rules-based order, unimpeded sea routes, global economic growth (particularly in Asia), and free trade. It should be no surprise then that Australians’ economic pessimism correlates with growing feelings of insecurity as the world rapidly shifts away from these foundations.

The global political and economic order is becoming more fragmented. The two superpowers, the United States and China, are more belligerent. The resurgence of US protectionism is being reinforced by discussion of tariffs (Opens in new window) in Europe to meet the “China Shock 2.0”. Global growth is slowing (Opens in new window) yet again under pressure from repeated shocks. The Strait of Hormuz remains closed (Opens in new window). China continues to coerce other countries (Opens in new window) even if it is not targeting Australia itself anymore.

The Lowy Poll shows most Australians do not trust China or the United States to act responsibly in the world. Trust in their leaders is currently even lower.

Put bluntly, Australians are concerned about their own economic future and, relatedly, the world Australia inhabits.

Governments can start by becoming better at protecting their populations from foreseeable shocks.

Fuel stockpiling in China (Opens in new window) (and to a lesser extent South Korea and Japan) has been vindicated in the wake of the Iran war’s energy shock. Beijing in particular adequately shielded households and the broader economy. According to the Lowy Poll, almost 75% of Australians now support building an oil stockpile in line with the International Energy Agency’s recommendations of 90 days of emergency fuel use, even at a cost of A$20 billion to taxpayers. Stockpiling of other essential inputs for Australia’s economy would go a step further.

People want stability and see value in policies that build economic resilience and security.

The European Union’s proposed policy that would force companies to use at least three suppliers (Opens in new window) for critical components, two of which must be in different geographic locations, could promote more diversified global value chains and reduce supply chain chokepoints. This is no silver bullet, but governments do need more heterodox approaches that reduce the risks of dependency and promote resilience while preserving the benefits of economic integration.

As the global foundations of Australia’s growth erode bit by bit, there will be little comfort in knowing that others share similar gloomy feelings. It is hyperbole to say Australia’s prosperity is over. It is not hyperbole to say that people are more worried than ever that it could disappear.