The latest national accounts show that labour productivity fell by 0.2 per cent over the year to the June quarter – the sharpest decline since March 2025. Both the market sector (‑0.2%) and the non‑market sector (‑0.3%) recorded negative productivity growth.

Independent economists Chris Richardson and Saul Eslake both point to this weak productivity as the primary reason why overall growth is sluggish and inflation remains stubbornly high. Richardson says the economy’s “engine – productivity – has been stalled for a long time”, while Eslake calls the current performance “abysmal”.

The government is betting on artificial intelligence to revive the productivity engine. A Treasury analysis suggests AI could add about 1.2 per cent to annual productivity, but Productivity Commission chair Danielle Wood notes that Australian businesses are lagging behind the United States, the United Kingdom and Germany in AI adoption.

Because productivity is low, the economy can barely sustain growth of around two per cent without pushing inflation above the Reserve Bank’s target. With inflation still near 3.5 per cent, the Reserve Bank is likely to keep interest rates high, which further dampens growth prospects.

In short, without a boost to productivity – whether through faster AI uptake, skills training or broader structural reforms – Australia’s growth will stay weak and price pressures will linger.