The economic upside of Artificial Intelligence for Australia

In brief

• AI could boost Australia’s GDP by between $95 billion and $116 billion over the next decade, equivalent to a 2.6 to 3.2 per cent uplift, while supporting a net gain of 36,000 to 44,000 jobs.
• By 2036, AI could lift multifactor productivity by 2.0 to 2.4 per cent by improving how efficiently the economy combines labour and capital.
• AI is expected to reshape labour demand across industries, with construction, wholesale trade and retail likely to see the strongest employment gains, while agriculture and mining may record a small reduction in jobs.
• Capital expenditure is expected to increase by approximately 3.2 per cent to 3.9 per cent above baseline, with the growth in data centres presenting a significant opportunity for Australia.
• Business investment in software, including AI-related applications and cloud platforms, will likely increase as AI adoption broadens.

The economic impact of AI

Australia’s economy is already benefitting from the global rise in artificial intelligence (AI), with the early gains mainly coming through major data centre investment. Over the next decade, the economic impact is expected to broaden as AI lifts productivity, reshapes labour demand, drives investment in physical and digital infrastructure, and accelerates spending on software and other intangible assets. The scale of the upside will depend on how quickly businesses adopt the technology, how effectively workers are reskilled, and whether Australia can attract and support the infrastructure investment needed to power AI’s growth rapidly.

Data centre investment in New South Wales and Victoria made a significant contribution to a strong 10.5 per cent annual pick up in business investment across the economy in the year to the March quarter 2026. Given much of the equipment linked to data centre expansion is imported, the direct contribution of AI capital investment to GDP growth is smaller than the total spend.

In addition, computer software investment continues to pick up, recording annual growth of 8.3 per cent in the March quarter. In the United States software investment has grown by an even stronger 13.7 per cent in the March quarter.

There are inherent difficulties in accurately capturing the full economic impacts of AI because many of the benefits are intangible and productivity gains take time to be fully realised. Technologies diffuse gradually, and firms need to redesign processes, reorganise work, retrain employees and make complementary investments before productivity gains become broad-based. The full scale of the AI transformation is therefore yet to be seen and will emerge gradually as business capabilities evolve and automation and enhanced decision-making become more embedded in organisations’ processes.

AI adoption rates vary by industry and size

Despite these measurement challenges, AI adoption has picked up significantly over the two years to December 2024, according to the Australian National Artificial Intelligence Centre (NAIC). NAIC’s June 2025 report shows retail trade, along with the health and education sectors, had the highest rates of AI adoption, while agriculture, forestry and fishing had a much lower level of usage. We expect adoption to have increased further across most industries in the next update of the data.

According to the Australian Department of Industry, Science and Resources, AI adoption is highest among larger companies.¹ Nearly 35 per cent of large businesses reported using AI in 2024-25, while around 11 per cent of small and micro businesses had adopted AI.² AI adoption rates were also highest for businesses which undertook innovation activities in the year, such as improving a product, service or business process. The AI adoption rate for large businesses which actively innovated in 2024-25 was 37 per cent, well above 29 per cent for those large businesses which did not undertake any innovation activity in the year.³

While commercial adoption of generative AI⁴ is still at a relatively early stage, 57 per cent of ASX200 companies reported they were actively investing in AI-related technologies in 2024.⁵ Although large companies have the resources to invest in AI, their scale makes it harder to pivot quickly. In contrast, small and medium-sized businesses tend to focus on practical, value-driven AI use cases aligned directly to business outcomes. As a result, these organisations can move faster, experiment more efficiently, and often achieve a higher return on investment relative to their capital spending.

AI is expected to boost productivity and employment opportunities, though outcomes will differ by sector

The deployment of AI presents a significant opportunity for the Australian economy, with platforms reshaping how work is performed and where value is created across industries. AI enables productivity growth through two primary mechanisms: the automation of existing labour-intensive activities and augmentation, which enhances the capability and effectiveness of workers across a wide range of occupations.⁶

We have conducted modelling using the EYGEM model to analyse the impact of AI on productivity and growth. We have approached the exercise by estimating a productivity shock which increases the efficiency with which the economy combines labour and capital, generating an increase in economy-wide productive capacity (see Technical Appendix below for methodology).

Using conservative estimates of AI-driven productivity enhancements, broadly consistent with analysis performed by the Productivity Commission⁷, EY-Parthenon modelling suggests that AI-driven enhancements to labour productivity are likely to stimulate economy-wide demand and lead to workforce reskilling.⁸ By 2036, it is estimated that AI adoption could deliver a 2.2 per cent increase in multifactor productivity under our baseline scenario. We have also modelled both a downside scenario, where AI productivity enhancements are 10 per cent lower than baseline, and an upside scenario, where AI productivity enhancements are 10 per cent higher than baseline. Under these scenarios we estimate that the increase in multifactor productivity by 2036 ranges from 2.0 per cent to 2.4 per cent.

With relatively high levels of technology penetration, Australia is well positioned to capture these benefits, supported by its stable investment environment, capital-intensive industry base, and capacity to support the expansion of energy and data-intensive infrastructure. Our analysis indicates that higher labour productivity may facilitate additional investment of between $31 billion and $38 billion over the coming decade, or the equivalent of a 3.2 per cent to 3.9 per cent uplift. This capital deepening boosts productive capacity and economic activity, lifting real GDP by between $95 billion (2.6 per cent) to $116 billion (3.2 per cent).

Despite this uplift, there would be a relatively small addition to the labour market: between approximately 36,000 to 44,000 additional full-time equivalent jobs, in net terms. Some jobs would be restructured or displaced, but new roles created elsewhere in the economy would more than offset those losses.

AI adoption is expected to reshape labour demand across industries. First, increased investment in AI-enabled capital, equipment and systems is likely to raise labour demand in investment-responsive industries such as construction. Second, productivity-driven gains in real wages and consumption are expected to lift demand for labour in service sectors, including wholesale and retail trade, transport and warehousing. Third, in capital-intensive industries such as mining and agriculture, greater automation and technological efficiency may reduce the number of workers required and lower costs, improving the international competitiveness of Australia’s exports.

Realising the economic benefits of AI will depend critically on workforce mobility and targeted reskilling to support a larger and reshaped economy.

A much-needed increase in productivity

Productivity growth is the primary driver of long-term economic growth and improvements in living standards. It has been weak in both Australia and other advanced economies over recent decades, with the United States a notable exception. Australian productivity growth has averaged just 0.3 per cent a year over the last 10 years, which is less than a quarter of the rate of the previous decade.

According to NAB’s business survey, capacity utilisation remained elevated at 82.0 per cent in the June quarter, above the 10-year pre-pandemic average of 81.2. This underscores the need for productivity improvements as the economy has been running at high levels of capacity for some time and needs to be able to supply more to produce non-inflationary growth.⁹

AI can execute and automate complex cognitive tasks in a fraction of the time previously required by humans, offering the potential for the technology to transform the economy and boost productivity growth.

There is significant uncertainty about the impact AI will have on the Australian economy and on long-term productivity growth. It is therefore useful to compare it with similar technological shifts to better understand what is possible and the scale of likely change. In the 1990s, IT transformation led to a large increase in business investment in IT equipment and software which initially boosted GDP growth. Larger gains were realised over time as processes evolved and adoption spread. Similarly, strong capital investment in AI capabilities is expected to drive long-term productivity growth, with an estimated five-to-10-year delay.¹⁰

In the short term, investment in AI including data centres may add inflationary pressure to the Australian economy, as has already been seen in the United States. Over the long term however, AI is expected to provide a disinflationary impact by boosting productivity, lowering labour costs and increasing output.

AI may also increase risks around price stability by giving businesses the ability to continuously monitor demand, input costs and competitor prices.¹¹ This could increase the frequency of price changes and the spread of price shocks. In the case of a sudden and significant rise in energy costs, this could result in simultaneous price rises across multiple industries, quickly magnifying an isolated shock into widespread inflation pressure. Equally though, when prices are not rising quickly, businesses could keep their price rises more in line with input cost changes and potentially keep price rises for consumers lower.

AI’s global growth potential could unlock significant capital investment

While past technological advancements took time for most benefits to be realised, the faster pace of AI diffusion may mean gains accrue much more quickly. According to the January 2026 EY-Parthenon Australia CEO Outlook Survey, 82 per cent of business leaders in Australia have experienced stronger than expected revenue growth and operational efficiency as a result of their own organisation’s AI initiatives.¹² A further 90 per cent of Australian CEOs expect AI to have a significant impact on their business model or operations over the next two years.¹³

AI data centre growth is a significant opportunity for Australia

Data centre construction has risen strongly in Australia amid the rapid acceleration in global AI usage. Australia ranked second in the world for data centre investment in 2024, with around US$6.7 billion spent, behind only the United States.¹⁴ Over the three years to 2025, companies announced Australian facilities with a potential value of over AU$100 billion.¹⁵

Real capital expenditure on equipment and machinery in the information media and telecommunications industry has increased from $2.0 billion in 2023 to a record $7.4 billion in 2025, amounting to growth of 272 per cent over just two years.

Demand is from both international and domestic data centre operators and reflects Australia’s abundant land, vast renewables potential, stable operating environment, clear legal protections and proximity to growing economies.¹⁶ In addition, Australia is one of only four nations in the Asia-Pacific region with access to advanced United States chips essential for AI development.¹⁷

As AI usage increases globally, Australia’s ability to secure new AI infrastructure investment will be critical to supporting growth. Industry has highlighted slow approval times for AI infrastructure as an impediment relative to other countries.¹⁸ The EY 2026 Australia and New Zealand Foreign Direct Investment Attractiveness Survey showed just 16 per cent of respondents viewed Australia’s approvals processes for foreign investment as “not at all restrictive”, for instance.¹⁹

While the economic benefits of data centre investment in Australia are significant, they also come with costs. The United Nations warned in June 2025 that data centres consume large amounts of water and energy, contributing to increased greenhouse gas emissions, accelerating climate change and putting climate targets at risk.²⁰ Data centres accounted for around 2 per cent of grid-supplied power in 2024 and demand is expected to triple over the next five years.²¹ In addition, it will be important to ensure data centres are designed to minimise water use.

As technology advances, new water recycling initiatives are being developed to meet data centre cooling requirements more sustainably. To meet rising energy demands, some countries, including the United States, are building nuclear reactors.²² Australia’s restrictions around nuclear power mean there is greater reliance on energy generation from natural gas, coal, wind and solar.

The Federal Government recently announced it plans to legislate new Australian AI standards, including the requirement for large-scale data centres to supply at least as much energy as they consume, as well as meeting energy and water efficiency requirements.²³

There is a risk that slow upgrades to energy and water infrastructure, combined with lengthy data centre approval times, could push investment elsewhere. This is underscored by the EY 2026 Australia and New Zealand Foreign Direct Investment Attractiveness Survey, which showed 27 per cent of respondents ranked improving the timeliness of approvals as the highest regulatory priority.²⁴

Non-physical AI-driven capital investment continues to pick up

In addition to physical infrastructure investment, intellectual property investment has also seen strong growth in Australia. Business investment in software, including AI-related applications and cloud platforms, increased by 8.3 per cent in annual terms in the March quarter 2026. Business investment in advanced software and AI applications has also contributed to an uplift in research and development, which grew by 4.9 per cent in March 2026, well above the 10-year pre-pandemic average of 0.6 per cent.

According to the Australian National Artificial Intelligence Centre (NAIC), AI-related patents have increased significantly from 170 in 2015 to 629 in 2024, while AI-related research publications have more than doubled over the same period.²⁵

The May 2025 EY-Parthenon CEO Outlook Survey found that 48 per cent of CEOs surveyed in Australia are accelerating future AI investments due to positive past results, and 37 per cent are expanding AI investments as costs decline.²⁶ The speed of AI diffusion and adoption by businesses will determine how long it takes before the majority of the technology’s productivity benefits are realised.

Business implications of the rise in AI

Australian business leaders see the rise of AI primarily as a workforce challenge rather than a source of job cuts. In EY-Parthenon’s CEO Outlook Survey, conducted in March and April 2026, 44 per cent of Australian CEOs rank large-scale reskilling as a top workforce priority over the next three years, while only 20 per cent prioritise reducing hiring.²⁷ Realising the productivity dividend will depend on redesigning work and continuously renewing skills.

Stakeholder engagement will be central to this. EY’s 2026 AI Sentiment Study for Australia and New Zealand finds public adoption running ahead of confidence, with 81 per cent of Australians wanting stronger rules on how organisations use AI.²⁸ Meeting that expectation can turn responsible AI into a source of competitive advantage rather than a compliance cost.

Yet capital alone will not determine success. In EY-Parthenon’s 2026 CEO Outlook, 80 per cent of Australian CEOs are increasing AI investment this year, yet they identify leadership and culture, rather than funding, as the main constraint on value.²⁹ Firms that redesign work, measure outcomes and move beyond pilots will capture the most value.

Summary

The Australian economy is benefitting from the global rise in AI and increasing adoption is expected to deliver between a 2.0 per cent to 2.4 per cent increase in multifactor productivity and boost GDP by between $95 billion (2.6 per cent) to $116 billion (3.2 per cent) by 2036. Despite this uplift it would support a relatively small addition to the labour market: approximately a net 36,000 to 44,000 additional full-time equivalent jobs, or equivalent to a 0.3 to 0.4 per cent uplift in employment.