Structural risk in a shifting cycle: macro trends for Australian boards

Australian boards in 2026 are operating in a structurally different risk environment. Economic stress, demographic change, geopolitical fragmentation, intensifying regulatory enforcement, rapid AI scaling and chronic technology underinvestment are converging – and they are embedded, interconnected and increasingly commercial.

Economic pressure and the cost-of-living squeeze

Consecutive increases in the cash rate have reversed the RBA's three rate cuts in 2025, and underlying inflation is rising too, with the RBA now forecasting it will peak at 3.7% by mid-2026, and unemployment will reach 4.6% by mid-2028. Corporate insolvencies rose 9% in 2025, and ASIC data shows a rising number of companies entered external administration.

Yet the demand picture is more complicated than a simple squeeze. Household spending volumes also rose for six consecutive quarters to December 2025, well beyond the RBA’s expectations. Household and government spending, along with the resulting rate increase, will compound pressure on already stretched borrowers as monetary policy continues to tighten. Construction, hospitality and retail remain the most exposed sectors, but refinancing risk is building across businesses that took on leverage in 2021-2023. Pricing power has largely evaporated, and wage pressures in tight labour markets are compressing margins from both sides.

It is too early to tell the impacts of the Iran war, but it would be safe to assume that it will make its way from the petrol bowser to the supermarket, and ultimately into the RBA Monetary Policy Board meeting.

Consider: credit risk, asset valuations, workforce attrition, reputational exposure from pricing conduct, and political risk as governments seek to address fiscal holes that are emerging from spending and debt servicing.

Demographic divergence

Australia's demographic profile is rapidly transforming, and the superannuation system along with it. An estimated 2.5 million Australians will enter the pension phase over the next decade, which will alter the nature of a large portion of capital in the economy. Retirement-phase assets are estimated at 40% of system and predicted to grow to 55% of all superannuation assets.

The APRA-ASIC Retirement Income Covenant review found that one in five funds provide no guidance on drawdown strategies beyond the legal minimum. As the superannuation sector switches from accumulation to annuity income generation, the investment pattern will alter the flow of capital coming from the sector.

From its 2022-23 peak of 538,000, net overseas migration is now forecast at 260,000 for 2025-26. While it supports labour supply and aggregate demand, migration also compounds pressure on housing and infrastructure in metropolitan areas already at capacity. The Australian economy continues to struggle with the supply of low cost, affordable housing in our urban centric economy and, as a result, housing affordability has deteriorated sharply. Home ownership among Australians aged 25-29 has fallen to 36%, the dwelling value-to- income ratio reached 8.2 in 2025, and 50% of median household income is now needed to service a new mortgage. Skimping on avocado toast won't fill the gap.

Put simply, we have an ageing cohort drawing down savings, migration sustaining growth but straining infrastructure, and a younger generation who can't accumulate wealth. This creates structural tensions that will reshape consumer markets, labour supply and capital allocation across corporate Australia.

Consider: Workforce planning, product strategy and capital allocation assumptions built on the demographic profile of the past few decades may no longer be fit for purpose. For a number of market participants, this will force a change in business model. The question for directors is whether their business model reflects this emerging Australia.

Geopolitical disruption and industry volatility

Geopolitical risk has moved from an abstract concern to tangible commercial pressure, most dramatically with the US-lsraeli strikes on Iran and Iran's retaliatory attacks across the Gulf providing a real-time illustration of how suddenly volatility can materialise and how quickly it transmits across supply chains, input costs and asset valuations. Rapid constriction of shipping through the Strait of Hormuz, airspace shutdowns across the Middle East, surging crude oil and European natural gas prices, sharp movements in marine insurance costs and a spike in the VIX are all impacting global business and, even if the conflict ended today, its effects would not.

US tariffs, subject to further volatility after the February 2026 Supreme Court ruling, add another layer of unpredictability. An Australian Industry Group survey found 47% of industrial businesses were experiencing active supply chain disruptions by August 2025, up from 35% in late 2024.

Even without war or tariffs, there are underlying patterns introducing volatility. In any sector where geopolitically driven competition and global overcapacity meets a relatively open Australian market, local businesses will also face a structural competitive squeeze. The automotive sector provides a useful illustration of the pattern.

Chinese manufacturers went from negligible market share to roughly 20% of Australian new vehicle sales in five years. Aggressive pricing, driven by surplus production capacity and government policy, is compressing margins across the distribution chain. Dealers are caught between rising financial costs, a rapidly shifting competitive landscape and aggressively priced products across new and used segments. They are transitioning to a changing market where inventory and supply chains need to be managed across a cycle that is longer than these new market dynamics.

As Lloyd Blankfein recently observed in the Financial Times, steering Goldman Sachs through the financial crisis was about contingency planning (and being brutally honest about what assets are worth). His point resonates well beyond investment banking.

Consider: Australian boards navigating structural uncertainty face a familiar temptation: defer meaningful investment unit conditions clarify, but deferral comes with its own risk. The businesses that compete effectively will be those that build contingency and resilience into their operating model.

Regulatory enforcement is structural, not cyclical

ASIC has doubled new investigations and nearly doubled court filings over the past 12 months. That approach has yielded a record $349.8 million in court-ordered civil penalties in the second half of 2025 from some of Australia's largest companies.

Its focus is on misleading pricing, financial reporting misconduct, private credit markets and insurance claims handling, and it's not limiting its investigations to financial services licensees. Directors of large proprietary and unlisted entities are squarely in the frame where financial reporting falls short, and two additional ASIC enforcement teams have been allocated to pursue unlawful practices against small business creditors.

Other regulators are active too, and regulatory frameworks are tightening in parallel:

• the mandatory merger control regime with new compulsory notification and longer approval timelines;

• a statutory tort for serious invasions of privacy and new transparency obligations for automated decision-making;

• the Tranche 2 AML/CTF reforms will impose significant requirements on real estate agents, lawyers, accountants, dealers in precious stones and metals, and trust and company service providers.

Each of these reforms alone can have a material impact on business operations. Collectively, they raise the floor on what regulators and the community expect of Australian businesses.

Consider: these new legal and regulatory risk must be factored into transaction planning, product design, operations, and capital allocation.

Al governance: the gap between deployment and duty

Al has moved from experimentation to rapid enterprise deployment, with almost all facets of the Australian corporate landscape engaging with this new technology. Governance is struggling to keep pace.

Directors’ duties under section 180 of the Corporations Act require care and diligence. You should assume this extends to the informed oversight of your Al deployment: model risk, data governance, intellectual property, algorithmic bias and agentic Al making autonomous decisions.

While the Australian Government has issued Guidance for Al Adoption, the Productivity Commission has cautioned that technology-specific legislation could chill innovation. In effect, existing laws will do much of the heavy lifting. That heavy lifting has already begun, with the Privacy Act requiring disclosure of the kinds of decisions made using substantially automated processes from December 2026.

Consider: organisations that wait for Al-specific regulation before building governance capability will find themselves exposed under, and potentially already in breach of, duties that already apply.

The technology deficit

The commercial impact of Al will not be uniform. In labour-intensive sectors, such as financial services, professional services, logistics, and customer operations, cost disruption will be substantial and rapid. In others, Al- enabled products and distribution will reshape competitive dynamics before incumbents can respond. The speed of development means boards cannot treat this as a medium-term question; it is creating winners and losers now.

Al offers a path to close the productivity gap, but the benefits will accrue to organisations with modern, integrated technology stacks. Companies carrying legacy infrastructure and technical debt may find Al widens the competitive gap rather than narrowing it.

Against that background, Australian business R&D spending deserves scrutiny. It sits at 0.89% of GDP, less than half the OECD average – a gap the Australian Academy of Science has quantified at $32.5 billion. Over the past decade, large business R&D investment has declined by 24%, leading the Productivity Commission to state they are not keeping pace with the frontier of innovation. R&D expenses in Australia run 12% above the OECD average, while tax incentives are 30% lower than in comparator countries. Multinational corporations with deep technology capabilities in cloud, data and Al are entering Australian markets at pace. A projected digital skills gap of 370,000 workers by 2026 compounds the problem. We have seen a range of Australian institutions sweat the asset, unintentionally or otherwise, as they struggle to manage financial and non-financial outcomes.

Consider: treating technology investment as foundational capital, and assess whether current expenditure is keeping pace with the competitive set you actually face in the short, mid, and long term. Legacy systems and accumulated technical debt are latent risks that many boards have not adequately managed.

A question of governance

Taken together, these pressures test whether Australian boards are structured, informed and willing to govern risk as a first-order strategic issue. The practical markers are straightforward:

• Does risk appetite actually constrain or direct capital allocation?

• Is the Board probing the short- and long-term implications of current financial settings?

• Does the Board have a clear view of risks to the existing and future business model caused by Al use in the industry and by customers?

• Is the organisation investing at a level that matches the competitive and regulatory environment it actually faces?

Directors who can answer those questions credibly are well placed. Those who cannot should expect that regulators, shareholders and competitors will each, in their own way, force the conversation.

_Disclaimer

_{Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.}