Most Australian businesses are drawing up their 2027 plans in a very different climate from the one they expected two years ago. The cash rate is 4.35%, following three rises in the first half of 2026. Underlying inflation remains at 3.6%, and unemployment has crept up to 4.5%.
The challenge is the mix: interest rates are high, demand is cooling, and inflation is still above the target band. Plans built on a rebound in sales are being rewritten around protecting margins.
Here’s a look at which assumptions no longer hold, and how executive teams are adapting.
The forecast that went backwards
Three-year plans written during 2025 mostly assumed the easing cycle would continue. That was reasonable at the time. The RBA cut three times that year, taking the cash rate down to 3.6%, and most forecasters expected further reductions.
Inflation then re-accelerated. The Bank raised rates by a cumulative 75 basis points across the first half of 2026 before pausing in August, and has been explicit that policy is now somewhat restrictive, that inflation remains too high, and that historically weak productivity growth continues to constrain potential growth.
For planning purposes, the Bank’s forecasts matter more than the current rate. Its August Statement on Monetary Policy expects demand and supply to come back into balance during 2027, with spare capacity emerging after that and unemployment rising gradually to 4.8% by the end of 2028. That is a slow grind. It is also the environment most 2027 budgets have to survive.
Pricing power is being tested properly
Two years of elevated inflation let a lot of businesses pass costs through without much argument. That window is closing as household budgets tighten and the labour market loosens.
Executive teams are responding by working out where pricing power actually sits. In most portfolios, it is concentrated in a small number of products, contracts or customer segments, and everything else has been carried along by general price movement. Separating the two changes what you discount, what you exit and where you invest.
Capital allocation at higher for longer
Market economists broadly expect the cash rate to stay elevated well into 2027, with cuts unlikely before the second half of that year. Treating a rate cut as a planning assumption is now a risk in itself.
That changes the arithmetic on almost every internal decision. Projects that cleared a hurdle rate set in 2021 do not clear the same test today. Working capital costs more to carry. Gearing levels set when debt was cheap are being revisited, and some boards are pushing capital expenditure into later years instead of committing at current funding costs.
The risk is over-correction. Cutting investment during a soft period is easy to justify and expensive to reverse, particularly when competitors are doing the same thing and capacity takes years to rebuild.
Productivity and the AI question?
Australia’s productivity problem is the structural issue almost every executive now has to address directly, because it is part of why inflation has stayed sticky while demand slows.
Artificial intelligence is the obvious candidate, and there is no shortage of spending. Evidence of returns is thinner. The RBA has noted that the global AI investment boom has lifted growth among Australia’s major trading partners, while domestic productivity growth remains historically weak. Money is going in. Measurable output has not followed at the same pace.
Boards have started asking narrower questions as a result. Which processes actually changed, how many hours were released, and what happened to those hours. A pilot nobody scaled is just a cost.
Energy as a board-level variable
Global energy disruption has moved fuel and input costs into strategic discussions that used to treat them as operating detail. For manufacturers, transport operators and anyone with an energy-intensive supply chain, the question is no longer only about hedging. It is whether the business model works at a structurally higher energy price.
Some firms are answering that with electrification and on-site generation. Others are redesigning logistics or bringing parts of their supply chain closer to home. Either way the decision has moved from procurement up to the board.
The skills this environment rewards
Conditions like these favour a particular kind of thinking. Forecasting has been unreliable for several years running, so what matters is the ability to read conflicting signals, commit to a position, and build a plan that survives being wrong.
That is part of why postgraduate business study tends to hold up when conditions tighten. Someone weighing an MBA in Melbourne is usually after the same capabilities this market is demanding: capital allocation, pricing discipline and enough economics to read the RBA properly. Melbourne Business School delivers its MBA online as well as on campus in Carlton, with six intakes a year and FEE-HELP available, which is the arrangement most people already in senior roles need.
Planning for a slow year
The useful thing about the RBA’s current forecasts is that they describe something gradual. Growth stays below potential for an extended stretch while inflation works its way back towards target, with no sharp recovery and no sharp fall along the way.
Plans built for that are less exciting than plans built for a rebound. They are also more likely to be right. The executives who spend 2027 defending margin and proving out the technology spending they have already committed will be in better shape than those still waiting for conditions to turn.
