Middle East conflict set to exacerbate local boardroom woes as directors brace for rising costs, AI risk

The Iran war is set to exacerbate boardroom woes as Australia’s company directors become increasingly concerned about productivity, rising business costs and higher-for-longer interest rates and inflation. The latest sentiment survey from the Australian Institute of Company Directors paints a grim picture of how board members across the country felt about the economy in the first half of 2026. It found that directors were already concerned about Australia’s outlook even before the Iran war erupted and its impacts became clear, with a growing number expecting economic and business conditions to be weak over the next 12 months. Productivity growth remained the top issue that directors want the Federal Government to address both in the short and long-term. Inflation and interest rates rose sharply as one of the main economic challenges facing businesses. Not only are directors anticipating continued monetary tightening, but they’re already feeling its effects, the AICD said. More than 40 per cent of the 828 directors surveyed between February 20 and March 10 believe the Reserve Bank of Australia’s monetary settings will cause a major uptick in business insolvencies, while 84 per cent believe there will be further rate rises in the next six months. A quarter of directors reported global economic conditions have impacted their investment plans. The AICD said this was likely to intensify as a consequence of the escalating conflict in the Middle East. Almost two thirds of directors report artificial intelligence tools have already delivered productivity benefits, and more than four in five expect AI implementation to increase over the next year. However, more than half say the pace of change is faster than their organisations can keep up with. AICD managing director Mark Rigotti said directors were navigating an increasingly complex risk environment, with productivity pressures, rising costs and accelerating technological change converging at the board table. “Boards are embracing the opportunities AI presents, but they are equally clear-eyed about the governance, cyber and workforce risks that must be managed if Australia is to lift productivity and competitiveness,” he said. AICD chief economist Mark Thirlwell said the overarching picture was one of caution, as businesses deal with disruption and high levels of uncertainty associated with global economic volatility and the rapid uptake of AI.