Rising geopolitical tensions in the Middle East are rippling through global markets, with Australian Treasurer Jim Chalmers warning that the economic fallout could weigh on both inflation and growth. The warning follows a surge in oil prices triggered by Israeli air strikes on Iranian nuclear facilities and retaliatory action from Tehran.
The conflict has added to existing global pressures, prompting investors to adjust their expectations for interest-rate movements in Australia.
“Higher oil prices do pose a risk to the inflation outlook but they also pose a risk to global growth,” Chalmers said in a televised interview with the ABC. He added that central banks tend to look beyond short-term price shocks, such as oil spikes, and instead focus on broader economic trends.
“Typically what reserve banks do, central banks, not just our own, but they try and look through temporary spikes in prices, and to consider the broader implications.”
Financial markets are now pricing in a 90% chance of a rate cut by the Reserve Bank of Australia (RBA) in the third quarter, which would bring the cash rate down to 3.6%. Traders also anticipate two additional cuts, potentially lowering the rate to 3.1%. In contrast, most economists expect just two cuts this year – likely in August and November – ending with a terminal rate of 3.35%.
Chalmers said that the current conflict is only one of several factors contributing to global economic uncertainty. He also pointed to ongoing trade tensions involving the United States, the protracted war in Ukraine, and slowing economic growth in China, Australia’s largest trading partner.
“So the global economy is a pretty dangerous place right now. Australia is well-placed and well prepared to deal with all of this uncertainty and volatility. But we won’t be immune from it,” Chalmers said.
Chalmers is set to elaborate further on Australia’s economic outlook in a speech at the National Press Club on June 18, where he will outline the government’s second-term economic priorities following Labor’s re-election on May 3.
