The Australian economy is expected to grow by around 2.25% through 2026, close to its potential, according to a Thursday report by ANZ.

The bank expects unemployment to remain flat with the labor market close to full employment.

The bank sees the cash rate remaining at 3.60% for an extended period, against the macroeconomic backdrop, combined with interest rates close to neutral.

ANZ said that there is a risk of a rate hike in 2026, and in case it happens, it's more likely to occur in the first half of the year than the second.

The bank expects public demand to grow by around 3% year-on-year on average over 2026 and 2027, a step down from the roughly 5% average pace of growth seen over the decade to 2024.

Headline inflation will be volatile, with the end of energy price subsidies expected to see a spike in early 2026, the report added.