Australian business and consumer confidence experienced a significant downturn in March and April, respectively, amidst concerns over a global oil shock stemming from the conflict in Iran. Surveys released on Tuesday indicate a potential recession for the local economy, prompting policymakers to evaluate further interest rate increases to manage inflation. National Australia Bank (NAB) reported its business confidence index tumbled 29 points to -29 in March, marking the second-largest monthly decline on record, comparable only to the 2008 global financial crisis and the onset of the 2020 COVID pandemic.
Separately, consumer sentiment slumped by 12.5% to 80.1 in April, reaching its lowest point in over two years, with appetite for large purchases plunging 15% as consumers tightened their spending. These combined survey results amplify worries that both supply and demand shocks could lead the Australian economy into stagflation, a scenario previously flagged by a central banker. Shane Oliver, chief economist at AMP, noted the dual challenge for businesses: “Not only has their confidence collapsed and their costs are going up, but consumer confidence has collapsed and that’s going to impact consumer demand.” Australia, which imports approximately 80% of its fuel, has faced localised shortages and soaring prices since the Iran conflict began.
The NAB survey also revealed that purchase costs for businesses jumped by a quarterly rate of 3% in March, up from 1.3% previously, impacting transport, utility, and construction industries. However, retail price growth saw a decrease to 0.5%, suggesting businesses may be struggling to pass on these higher expenses to consumers. The Reserve Bank of Australia (RBA) has already implemented two consecutive rate rises this year, taking the cash rate to 4.1%, as it monitors the risk of escalating fuel costs unmooring medium-term inflation expectations. RBA Deputy Governor Andrew Hauser described the situation as a “central bank’s nightmare: the stagflationary shock – inflation up, activity down.”
