Feeling gloomy about the future? You’re not alone. New data shows economic pessimism is growing in Australia, and the implications reach far beyond the hip pocket.

The latest Lowy Institute poll shows a sharp decline in economic optimism, with just 41% of Australians feeling optimistic about Australia’s economic performance in the world over the next five years. This is the first year in which pessimism has outstripped optimism since the question was first asked in 2005.

Recent analysis of a survey on social cohesion by the independent Scanlon Foundation tells a similar story: Australians have become less hopeful about their personal futures and the nation’s future.

So what is economic pessimism, why does it matter, and what can we do about it?

This is a warning sign

First, a reality check. Australia performs well across a suite of international economic and social measures – ranking highly on life expectancy, human development, employment, and economic growth per person, as well as self-reported life satisfaction. We are also one of the world’s leading democracies.

But even if there’s nowhere in the world we’d rather be, Australians are still feeling down and are worried about the future.

A recent Grattan Institute report showed that while Australians overwhelmingly value our democracy, our social compact is under pressure from growing economic pessimism, worry about the prospects for future generations, concerns about unfairness, and a declining sense of belonging.

The past few years have been marked by high inflation, and cost-of-living pressures have been felt disproportionately by the young, the poor and renters.

Though the labour market has remained strong, productivity growth has been weak, house prices and rents have increased rapidly in many high-demand areas, real incomes have fallen, and consumer confidence is low.

There are concerns Australia could be headed for a period of “stagflation”, when economic growth stagnates but inflation stays high.

The annual Lowy survey of economic pessimism was conducted in early March, when the Iran war was just breaking out. But even before the war, pessimism was brewing. In a major survey conducted after the 2025 federal election, only a quarter of Australians thought the economy would improve over the year ahead.

Economic pessimism hits how we feel about democracy

How we feel about the economy is linked to how we feel about democracy. People who are down about the economy are more likely to feel dissatisfied with democracy and have lower trust in government.

Belief in the “fair go” – the idea that hard work brings a better life – is declining. Just three in five Australians agree this is true, compared with four in five a decade ago. This decline is particularly pronounced among younger Australians.

In another survey, about half of respondents thought life would get worse over the next 50 years for people like them, while only 16% thought it would get better. Just 17% of Australians think the next generation will be better off.

Financial stress is one driver of pessimism. Yet many who are financially well-off are still pessimistic about the economy.

Politics, media and social media play a part. Populist parties whip up and feed off discontent. And people who have negative economic expectations are more likely to vote for independents and minor parties.

If growing economic pessimism leads to weaker consumer spending in the short term, that would actually be helpful in bringing down inflation.

But the big risk is if economic pessimism becomes entrenched. Gloomy expectations are self-reinforcing and can be self-fulfilling.

What can policymakers do about it?

To some extent, these negative expectations reflect a more volatile global economy, over which Australian policymakers have limited control. Trade barriers, inflation and geopolitical tensions have all contributed to a more uncertain economic outlook.

Indeed, economic pessimism seems to be the norm across many countries around the world.

But that doesn’t mean Australia can or should ignore it.

Economic pessimism partly reflects genuine dissatisfaction. Australia faces challenges we’ve known about for decades – including housing affordability, climate change and lacklustre productivity – and while policymakers continue to chip away at these things, progress feels slow.

Getting on with the job is part of the answer: acknowledging and tackling the challenges ahead, grappling with the trade-offs, and “growing the pie” so there’s more to go around.

Economic pessimism also reflects broader fears about the future. These are turbulent times. Rolling, intersecting shocks may be the new norm.

We need honest conversations about what the risks are, and how we’re reducing the nation’s vulnerabilities. This will help communities prepare and calibrate public expectations about what governments can reasonably do to cushion the blow.

The national mood is low right now, but there are many reasons for hope – not least that Australia has adapted well to shocks and crises in the past, and we are better positioned than most to forge a more prosperous future.

The Grattan Institute began with contributions to its endowment of $15 million from each of the federal and Victorian governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website.