Day 2 Insights: AI, Household Spending, and Sovereign Debt Pressures at CommBank’s 2026 Global Markets Conference

Day 2 of Commonwealth Bank’s Global Markets Conference in Sydney shifted focus to how major forces from Day 1 are playing out across businesses, households, and financial markets.

Key themes included AI adoption, consumer spending trends, state finances, government borrowing, and the expanding Australian bond market.

Below are five essential takeaways from Day 2.

1. AI investment is entering a new phase

The substantial capital flowing into AI has dominated investment discussions, but attention is increasingly turning to how businesses apply the technology. Productivity gains will depend on AI spreading across the broader economy, reshaping business processes and enhancing products and services, rather than remaining confined to technology firms and data‑centre operators. This shift will require significant workforce changes as companies build new skills and reconsider job designs. The discussions also highlighted possible impacts on entry‑level roles and rising cyber‑risks associated with more powerful AI tools. Australia’s overall productivity challenge remains critical; capacity constraints in construction, housing and skilled labour could limit the economy’s ability to absorb the surge in investment in AI, defence and infrastructure.

2. Households are adapting their spending patterns

Rising interest rates and cost‑of‑living pressures are increasingly influencing household expenditure. CBA’s head of Australian economics, Belinda Allen, said the bank’s transaction data shows “signs that household spending is slowing.” After four rate hikes, spending growth has eased, inflows into mortgage offset and redraw accounts have slowed, and some households are drawing on savings to sustain consumption. “Households are having to make choices because of higher inflation and interest rates,” Allen noted. The slowdown is uneven: housing‑related categories such as homewares and appliances have weakened, while restaurants, recreation and takeaway services remain resilient. CBA data also reveals structural shifts, including higher spending on electric‑vehicle charging and AI subscriptions.

3. State finances face higher interest costs

Increased borrowing costs are beginning to affect state government finances at a time when infrastructure spending remains robust. S&P Global Ratings presented figures showing that state interest payments are projected to reach around $40 billion by FY29, equivalent to roughly 7 % of operating revenue and about double the pre‑pandemic level. S&P also forecasts gross state debt to climb to about $800 billion by the end of the current financial year, up from around $300 billion in FY19. Although states retain high credit ratings, larger debt‑servicing obligations can diminish financial flexibility for service delivery and economic shock response. A softer housing market adds pressure through lower stamp‑duty revenues. CBA’s head of market strategy and rates research, Adam Donaldson, said reduced housing turnover and prices are materially impacting state revenues, with effects likely to appear in upcoming budget updates and borrowing needs.

4. Refinancing is becoming a larger component of funding strategies

As borrowing programmes expand, governments and other issuers are placing greater emphasis on debt maturity timing, not just on the total amount raised. Discussions highlighted a growing focus on smoothing maturity profiles, preserving liquidity buffers and distributing funding across various maturities and markets. This approach reduces the risk of large volumes of debt requiring simultaneous refinancing, especially when low‑rate era debt is being rolled over at considerably higher yields. The challenge is likely to persist if rates settle above pre‑pandemic levels. Donaldson attributed the shift in global saving and investment patterns—partly driven by AI, defence spending and the energy transition—to a longer‑term elevation in borrowing costs, stating, “Structurally, we are firm in the view that rates and yields are going to be higher.”

5. Liquidity gains importance as Australia’s bond market expands

Australia’s bond market has grown larger, more liquid and more internationally integrated, enabling governments and other borrowers to raise substantially more funding. Offshore participation and bond turnover have increased, broadening the investor base for Australian issuers. However, a more global market can also transmit overseas volatility more quickly into Australian fixed‑income markets. This dynamic is placing greater emphasis on the underlying market infrastructure. Repo markets, where securities are exchanged for cash with a reverse‑transaction agreement, play a crucial role in helping investors finance assets, manage liquidity and circulate collateral through the financial system. While Australia already has a sophisticated and highly international market, central clearing, more efficient settlement and easier collateral movement were identified as areas that could support further growth. As the bond market expands, these less visible financial‑system components will become increasingly vital for maintaining liquidity and resilience.

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