Sharon Zollner: ANZ Chief Economist on the economic fallout from the conflict in the Middle East

“Enormous” swings in the price of oil are making it very difficult to gauge the severity of the shock to markets from the Iran war, ANZ chief economist Sharon Zollner says.

Oil hit $120 per barrel yesterday but dropped back below $100 after the G7 nations signalled they could release strategic oil reserves.

Zollner told Ryan Bridge she agreed with Finance Minister Nicola Willis' assertion that the duration of the shock was just as important as its size.

Market volatility would continue, with “headlines all over the place”, and that uncertainty could lead to people spending less money.

But central banks would be keen not to do anything rash by rushing to raise interest rates, Zollner said.

For New Zealand’s Reserve Bank, “as long as inflation expectations remain well anchored then they can tolerate a bit of noise in the near term, rather than feel they need to deliberately head the recovery off in order to make sure inflation's back at 2% quickly”.

But if the shock was long and sustained “it will be more difficult to look through those inflationary impacts - and then it could get a bit ugly”. 

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Episode Transcript

Speaker 1 (00:00):
So we all heard the doom and gloom at postcam yesterday.

Speaker 2 (00:02):
I am advised that a quick resolution of the conflict
in the next few weeks would see the economy evolve
close to the preliminary forecasts, albeit with slightly higher inflation
in the near turn. A longer conflict would likely have
downside GDP impacts.

Speaker 1 (00:18):
By the way, Brient crew this morning has come back
from one hundred and twenty dollars of barrels now back
under one hundred dollars, still floating around it with but
Sharon's Olner, A and Z chief economists with us this morning. Sharon,
good morning, good morning. Give it to us straight. How
bad is this going to get?

Speaker 3 (00:34):
Well? Well, having spoken to them major world leaders, that's
the thing that we are in no position today. And
the Minister is quite right that the duration of the
shop is just as important as the size of it.
And as regards the size of it, I mean, oil
hit one hundred and twenty yesterday, now it's back under
one hundred. I mean, these moves are enormous, so very

(00:56):
very difficult to gauge the severity of the shop for
market at the moment. But yeah, some are shooting first
and ask some questions later. In terms of the market,
moves have been quite ferocious. But we're seeing not just
the oil price but other prices like bond yields coming
back a bit as well, which is good because we

(01:16):
had a wild day yesterday in the Zealand market.

Speaker 1 (01:18):
Yeah it was pretty crazy, wasn't it. Do you think
Edell might come down a bit more today given what's
happening with that oil price?

Speaker 3 (01:25):
Is it? Typically the New Zealand market reflects what's happened
in the US market overnight. So that I've just checked,
the US tenure yields have come back a long way,
so the New Zealand bond yields should follow hopefully on
the open. But we will continue to follow them up
and down however the volatility goes. And that's one of
the things that is easier to be certain about at
the moment, is that solatility is going to continue because

(01:47):
market are reacting to headlines that are all over the place, of.

Speaker 1 (01:51):
Course, and then there's our reaction to those headlines too,
both businesses and consumers. And we saw what happened with
Trump and his tariffs. You know, we all went, oh,
not spend any money. Let's stay home. Whatever. Do you know,
is there a risk that happens here? Does the recovery stall?

Speaker 3 (02:07):
I have absolutely, uncertainty is not great for decision making,
That's always the case, and of course we've already got
an election this year. We were wondering if that uncertainty
could impact and the uncertainty about the global growth outlook
will be weighing on the minds of exporters for sure,
and cost inflation potentially as Well've obviously got a lot
of businesses that are exposed to energy costs. Fertilizer is

(02:30):
another one that tends to move pretty closely with oil
as well. So yeah, the uncertainty, well, let's hope it's
resolved alatively quickly. But right here, right now, it's like
it's pretty much at the maximum in terms of whether
we're looking at a short or a long term disruption
to oil markets here.

Speaker 1 (02:49):
And yet you sound quite relaxed to me. Is that
because is Sharon? Is that because you're doing your best
to sound relaxed or do you think do you think
there's an equal chance Actually this could up in a
week or two and everything's back to normal.

Speaker 3 (03:03):
It's not looking that way, is it, But it is
looking a lot better than it was twelve hours ago
in terms of the market prices, but who knows where
it to look like twelve hours from now. But I
do think that central banks at least will be keen
to not panic and not do anything rare in terms

(03:23):
of rushing to raise interest rates because it's inflationary for example,
because it is also bad for growth, and so the
trade off and the choices are quite stark for central
banks in terms of how they should respond to it.
Our own central bank express confidence and inflation that looks
in Febry. I'm sure they're feeling less confident now, just
because oil is such an important input into all sorts

(03:46):
of costs and prices. But as long as inflation expectations
remain well anchored and they can tolerate a bit of
noise in the near term, rather than feel they need
to deliberately head the recovery off in order to make
sure inflations back at two percent quickly. That's not how
these things work. But if it's a very long sustained shock,

(04:06):
then there will be more difficult to look through those
inflationary impacts, and then it could get a bit ugly.

Speaker 1 (04:12):
Sharon, thank you. Sharon's on the A and Z Chief Economists.

Speaker 2 (04:15):
For more from Early Edition with Ryan Bridge.

Speaker 1 (04:18):
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