Australian business, consumer confidence crashes on worries about fallout from Iran war

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SYDNEY – Australia’s business and consumer confidence crashed as the Iran war unleashed a global oil shock that may tip the local economy into a recession, surveys out on April 14 showed, as policymakers weigh whether more rate rises are needed to tame inflation.

A survey from National Australia Bank (NAB) showed its index of business confidence tumbled 29 points to minus 29 in March – the second-largest monthly fall in history – a decline on a scale seen only in 2008 during the global financial crisis and again in 2020 with the onset of the Covid-19 pandemic.

A separate survey out on April 14 showed consumer sentiment slumped by 12.5 per cent to 80.1 in April, the lowest in more than two years. An index measuring appetite for large purchases plunged 15 per cent as consumers tightened their spending.

The two surveys added to concerns that both supply and demand shocks could put the Australian economy into stagflation, as a central banker warned on April 13.

“We’ve got this problem for businesses now. Not only has their confidence collapsed and their costs are going up, but consumer confidence has also collapsed, and that’s going to impact consumer demand,” said Dr Shane Oliver, chief economist at AMP Investments.

“If the oil starts flowing through the Strait of Hormuz really quickly, then we probably avoid a recession. But if it doesn’t, then I suspect by the time we get to the end of next month, we’ll have to see fuel rationing, and that’s when the economic impact really starts to bite.”

Australia, which imports about 80 per cent of its fuel, has experienced localised shortages and soaring prices since the Iran war broke out, as it has leaned on its Asian allies to maintain fuel supplies.

The surveys also took place before the fragile ceasefire between the US and Iran, with a deal to end the month-long conflict in the Middle East yet to be reached.

The higher energy costs were feeding through to the transport, utility and construction industries, with a measure of business purchase costs jumping by a quarterly rate of 3 per cent in March, up from 1.3 per cent previously, the NAB survey showed.

However, retail price growth fell to 0.5 per cent, suggesting businesses may be struggling to pass on the higher costs to consumers.

The economic outlook has also been tempered by two consecutive rate rises from the Reserve Bank of Australia (RBA), bringing rates to 4.1 per cent in 2026, as policymakers worry the spike in fuel costs could unmoor inflation expectations over the medium term.

RBA deputy governor Andrew Hauser said the central bank was closely watching consumption, which was growing but at a relatively slow pace.

“I don’t think those surveys necessarily tell you a lot about what consumption is going to do. But if they’re right, we have a big income shock coming our way... So it is the central bank’s nightmare: the stagflationary shock – inflation up, activity down,” he said. REUTERS