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Australia could find itself on the brink of a recession, with unemployment perilously close to surpassing six percent, if the current conflict prolongs. This would mark the nation’s first recession since the upheaval of the COVID-19 pandemic.
“The outlook is grim for Australia the longer this conflict continues,” observed John Kehoe, Economic Editor for the Australian Financial Review, during an interview with Today.
Kehoe highlighted the potential for economic downturn should the situation extend into mid-year, particularly if the Strait of Hormuz remains blocked and oil shipments fail to resume. “Without the free flow of oil through the Strait, the risk of a recession in Australia becomes very real,” he cautioned.
The concern grows as U.S. President Donald Trump grapples with devising a solution to Iran’s blockade of this vital maritime passage. Each week that commercial ships remain stranded outside the Strait increases the likelihood of a recession affecting Australia, Kehoe warned.
He warned a recession in Australia becomes more likely every week that commercial vessels are locked out of the Strait.
A prolonged war would spell bad news for the global economy, as well as local job and inflation data.
“Becoming more plausible because we’re not seeing a lot of good news coming out of the Middle East,” Kehoe added.
“We’d want to see something in terms of the Strait of Hormuz opening within the next few weeks.
“If it drags on much beyond that, you’d have to say the economic outcomes in Australia are not going to be good.”
While Treasurer Jim Chalmers has flatly denied any suggestion of a recession, the RBA has flagged that a domestic recession could be a necessary evil to drive inflation down.
“We don’t want to have a recession, but if it’s hard to get inflation down, then we’re going to have to deal with that, possibly,” RBA governor Michele Bullock said.
Chalmers said over the weekend that the Australian economy was weathering the Middle East fallout “from a position of relative strength”.
“[We] know the effects of this crisis will be felt for a long time and as I’ve said, we are considering that as we prepare the budget,” Chalmers said.
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