Australian corporates are increasingly facing the financial repercussions of the Middle East conflict, with two major companies issuing profit warnings and broader economic sentiment plummeting. This situation, marked by rising prices, is elevating the risk of stagflation across the nation. Australia’s top airline, Qantas Airways, which provides domestic and international air travel services, and the country’s second-largest lender, Westpac Banking Corp, offering banking and financial services, have both indicated their earnings could be negatively affected by surging fuel costs and a tightening impact on customers, providing clearer insight into how global events influence Australian corporate bottom lines.
Qantas cautioned its jet fuel bill for the second half of the financial year could be up to A$800 million, or 32% higher than previously forecast, due to oil price hikes. The airline has reduced flight capacities, increased fares, and deferred a planned A$150 million share buyback due to heightened uncertainty. Westpac announced an increase in credit provisions, anticipating a tougher financial outlook for borrowers grappling with escalating prices and interest rates. Provisioning is now at its highest since the COVID-19 pandemic, with one analyst noting Westpac’s concern over potential bad debts from energy-exposed customers.
These corporate updates coincided with alarming economic data. Surveys revealed a sharp decline in both business confidence and consumer sentiment; the National Australia Bank’s index of business confidence plummeted 29 points to -29 in March, a fall not seen outside major crises. Concurrently, consumer sentiment dropped 12.5% in April, reaching its lowest point in over two years. Reserve Bank of Australia Deputy Governor Andrew Hauser highlighted the precarious situation, noting the country could be confronting “the central bank’s nightmare: the stagflationary shock – inflation up, activity down.” Omkar Joshi, Chief Investment Officer at Opal Capital Management, further warned that recession or stagflation is “definitely a real risk,” a risk he believes has significantly increased recently.
