The Pacific Bank CEO warns: Middle East war increases risk of Australian economic recession.

The chief executive officer of Westpac Banking in Australia, Anthony Miller, has warned that the conflict in the Middle East has increased the risk of the Australian economy falling into a recession. He stated that it is still unclear how long it will take for the supply chain disruptions caused by the war to transmit through the entire economic system. Miller said in an interview on Friday, "The situation has changed dramatically, and a recession is possible." "The key is how long this war will continue, but more importantly, how long it will take for the consequences of the supply chain disruptions to be resolved." The latest GDP data for the fourth quarter of 2025 in Australia showed a year-on-year growth rate of 2.6%, which was higher than expected. However, in the past month, the conflict in the Middle East has had a ripple effect on the national economy. Diesel prices, which the country heavily relies on, have surged, and shortages have been reported in all states. At the same time, global transportation costs are also on the rise, posing a challenge for this island trading nation. Although Australia's Treasurer Jim Chalmers had stated in mid-March of this year that Australia did not "forecast or anticipate" an economic recession. Lucy Ellis, the chief economist of Westpac Banking, stated in a report on March 30th that she expects the Reserve Bank of Australia to raise interest rates three more times in the whole year of 2026, bringing the benchmark rate to its highest level in 17 years to curb the rising inflationary pressures. Ellis predicts that the Reserve Bank of Australia will raise interest rates for the third consecutive time, starting in May, followed by increases in June and August, bringing the cash rate from 4.1% to 4.85%, the highest level since the end of 2008. This forecast aligns with the pricing in the monetary markets, which also indicate that the Reserve Bank of Australia is likely to raise interest rates three more times this year. In March, the Reserve Bank of Australia announced a 25 basis points rate hike with a close vote of 5-4. The five members who voted for the rate hike believed that the conflict in the Middle East would further squeeze the already constrained economic supply capacity and could lead to uncontrolled inflation expectations. They emphasized the importance of showing a clear commitment to returning inflation to target levels. The Reserve Bank of Australia estimates that if oil prices remain around $100 per barrel, overall inflation in Australia will rise to about 5% in the June quarter. The four dissenting members who opposed the rate hike were concerned about weak household consumption and remained more skeptical about whether the labor market had recently tightened. They suggested waiting for some time to further clarify the potential impacts of the conflict in the Middle East before making a decision. This vote was the most divided since the disclosure of voting results began last year. Such a narrow vote difference means that future policy paths will heavily depend on real-time data and risk assessments. In addition, the minutes of the Reserve Bank of Australia's March meeting, released at the end of March, indicated that the Monetary Policy Committee believed that monetary policy still needed to maintain a tightening stance, and if the conflict in the Middle East were to trigger an economic recession, the central bank would take countermeasures at any time. The minutes stated, "If the conflict continues for an extended period, it may have significant impacts on inflation and economic activity. Therefore, members believe that future policy decisions will require the board to carefully balance between its two main policy objectives." Given the two rate hikes already this year, combined with the uncertainty brought by the war, committee members unanimously agreed that it was impossible to make any confident predictions about future interest rate movements.