The ongoing Middle East conflict has seen Australia business confidence hit lows not seen since the Covid-19 pandemic.
The US has today moved to blockade the Strait of Hormuz, and the supply shock is likely to hit households hard, according to experts.
HSBC chief economist Paul Bloxham explained further.
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Speaker 1 (00:00):
Now Australian business and consumer sentiment has fallen to COVID
pandemic lows. HSBC's chief economist Paul Bloxham is with us
on this high Paul good aim. I mean we're talking
about two different surveys here, one dealing with consumer one
dealing with business sentiment, but both have crashed, haven't they.
Speaker 2 (00:16):
That's right. So the consumer sentiment survey is for April
and it fell really sharply and got to its lowest
level since I think twenty twenty three. Although that's the
sort of that's you know, the pandemic and the previous
levels times it has been at those levels have been
the global financial crisis and the nineteen nineties recession, so
we took them at quite low levels. And the other
(00:37):
survey that came out today is the business one and
that fell as well, quite sharply, lowest level in six years,
and it's for March. So yeah, some fairly clear signals
that the Australian economy is facing some tougher times that
we think it's sort of two shocks. It's the fact
(00:58):
that of course energy prices have gone I feel prices
have gone up sharply on the back of the Middle
East conflict and its impact, but also the fact that
the RBA has been lifting interest rates. We've had two
interest rate rises from them back to back in February
and in March. And I think if you combine those
two forces, they are cutting pretty heavily into household disposable incomes,
and we think that's going to mean that consumers are
(01:20):
going to pull back. And I think these are the
first signs of that flowing through to some of the
sort of indicators that we get for the economy.
Speaker 1 (01:27):
Can we untangle in these numbers pull how much of
this is based on what has already happened, like the
prices that have already gone up, and how much this
is based on perhaps fear or clarity about how bad
this could be.
Speaker 2 (01:40):
It's difficult to do that with it, you know, particularly
with these indicators. But I mean, I think the thing
you can say with the Consumer Sentiment one is that
it's both March and April, so it's a later reading,
so it's got a lot of what's already happened in it.
I'd say the Business survey is an earlier reading because
actually it's for March. It's not really sort of that
(02:02):
a lot of the bad news that's come from offshore
has played has played out through March and into early April,
so I think there's probably still more downside yet to come.
On the business front. I think this is confidence indicator,
which is what we keep track of, is that's the
one that's fallen really sharply. There's a conditions index as
well that actually held up okay in March, but it
(02:22):
turns out, you know, that confidence tends to lead the conditions.
If confidence falls, it's then that conditions start to weaken.
So I would say we're not out of the woods yet.
There's still more weakness to come. And the way we're
thinking about this is this is sort of supports the
view that we've got that we think GDP will probably
contract in Australia in the second quarter. So this is
the quarter we're currently in, and this is the sort
(02:45):
of leading or early indications that that's likely.
Speaker 1 (02:49):
Is have we had confidence in this country full Comparably
in New Zealand.
Speaker 2 (02:54):
No, New Zealand looks a bit better And I've been
saying this for a few weeks now that I think
New Zealand is in a bit better spot altogether. For
dealing with the shock that you're that we're now facing.
The PMI indicators haven't fallen as sharply in New Zealand
as as you've seen in these confidence indicators in Australia.
And I think the other thing to keep in mind is,
(03:17):
you know, having had a weaker economy for a period
of the last three years in New Zealand, that's broad
inflation down such that inflation has already come down a
bit and it's not far off where the RBNZ needs
it to be. And of course now we're facing another
inflation shock, but that's a better starting point than where
we are in Australia, where inflation actually has been surging
(03:38):
over the past over the second half of last year
and is already too high even before we account for
the fact that now we've got another step up in
petrol prices and the cost base. So New Zealand, the
ARBENZ is in a bit better spot, I think than
the RBA. It may may not be sort of that
comforting the reason you're there, because actually conditions have been
(03:58):
weak for the past three years, but it is a
better spot to be in to have a bit of
spere capacity in your an economy and have inflation that's
a bit lower when you face another global inflation shop
than what's happening here in Australia where inflation is already
too high.
Speaker 1 (04:12):
Yeah, now this blockade that's happened, is this forcing you
to reconsider any of your forecasts.
Speaker 2 (04:19):
Look, we're watching these developments very closely. I mean every
day there's something new to keep in mind. I think
the main thing that we would take you from this
is at the moment, the key thing to watch for
is when does the flow of energy start again? When
does the strait of hormas really open up? And when
do we start to get the ships coming through? And
the longer that goes on, the longer it goes on,
(04:42):
the more disruptive it's likely to be. I think there's
still quite a bit of a lag between sort of
the fact that it's been closed now for about six
weeks and it hasn't and the actual impact it's going
to have on energy markets. There's a lag between those
things because if you think about it, the ships that
had left six weeks ago are now arriving at refineries. Well,
(05:03):
there won't be another set of ships to follow it necessarily,
and so I think this is going to play out
over the next few months, and as I say, the
longer it goes on, the more disruptive it's likely to be,
the larger downside risk it creates to the global growth
and to local growth as well. So it's obviously not
over yet because the Strait is still not open.
Speaker 1 (05:24):
Yeah too right, Paul, Thank you as always appreciate it.
We'll talk to you next week, Paul Bloxham, HSB Chief Economist.
Speaker 2 (05:30):
For more from Hither Duplessy Allen Drive, listen live to
news talks. It'd be from four pm weekdays, or follow
the podcast on iHeartRadio.
Now Australian business and consumer sentiment has fallen to COVID
pandemic lows. HSBC's chief economist Paul Bloxham is with us
on this high Paul good aim. I mean we're talking
about two different surveys here, one dealing with consumer one
dealing with business sentiment, but both have crashed, haven't they.
Speaker 2 (00:16):
That's right. So the consumer sentiment survey is for April
and it fell really sharply and got to its lowest
level since I think twenty twenty three. Although that's the
sort of that's you know, the pandemic and the previous
levels times it has been at those levels have been
the global financial crisis and the nineteen nineties recession, so
we took them at quite low levels. And the other
(00:37):
survey that came out today is the business one and
that fell as well, quite sharply, lowest level in six years,
and it's for March. So yeah, some fairly clear signals
that the Australian economy is facing some tougher times that
we think it's sort of two shocks. It's the fact
(00:58):
that of course energy prices have gone I feel prices
have gone up sharply on the back of the Middle
East conflict and its impact, but also the fact that
the RBA has been lifting interest rates. We've had two
interest rate rises from them back to back in February
and in March. And I think if you combine those
two forces, they are cutting pretty heavily into household disposable incomes,
and we think that's going to mean that consumers are
(01:20):
going to pull back. And I think these are the
first signs of that flowing through to some of the
sort of indicators that we get for the economy.
Speaker 1 (01:27):
Can we untangle in these numbers pull how much of
this is based on what has already happened, like the
prices that have already gone up, and how much this
is based on perhaps fear or clarity about how bad
this could be.
Speaker 2 (01:40):
It's difficult to do that with it, you know, particularly
with these indicators. But I mean, I think the thing
you can say with the Consumer Sentiment one is that
it's both March and April, so it's a later reading,
so it's got a lot of what's already happened in it.
I'd say the Business survey is an earlier reading because
actually it's for March. It's not really sort of that
(02:02):
a lot of the bad news that's come from offshore
has played has played out through March and into early April,
so I think there's probably still more downside yet to come.
On the business front. I think this is confidence indicator,
which is what we keep track of, is that's the
one that's fallen really sharply. There's a conditions index as
well that actually held up okay in March, but it
(02:22):
turns out, you know, that confidence tends to lead the conditions.
If confidence falls, it's then that conditions start to weaken.
So I would say we're not out of the woods yet.
There's still more weakness to come. And the way we're
thinking about this is this is sort of supports the
view that we've got that we think GDP will probably
contract in Australia in the second quarter. So this is
the quarter we're currently in, and this is the sort
(02:45):
of leading or early indications that that's likely.
Speaker 1 (02:49):
Is have we had confidence in this country full Comparably
in New Zealand.
Speaker 2 (02:54):
No, New Zealand looks a bit better And I've been
saying this for a few weeks now that I think
New Zealand is in a bit better spot altogether. For
dealing with the shock that you're that we're now facing.
The PMI indicators haven't fallen as sharply in New Zealand
as as you've seen in these confidence indicators in Australia.
And I think the other thing to keep in mind is,
(03:17):
you know, having had a weaker economy for a period
of the last three years in New Zealand, that's broad
inflation down such that inflation has already come down a
bit and it's not far off where the RBNZ needs
it to be. And of course now we're facing another
inflation shock, but that's a better starting point than where
we are in Australia, where inflation actually has been surging
(03:38):
over the past over the second half of last year
and is already too high even before we account for
the fact that now we've got another step up in
petrol prices and the cost base. So New Zealand, the
ARBENZ is in a bit better spot, I think than
the RBA. It may may not be sort of that
comforting the reason you're there, because actually conditions have been
(03:58):
weak for the past three years, but it is a
better spot to be in to have a bit of
spere capacity in your an economy and have inflation that's
a bit lower when you face another global inflation shop
than what's happening here in Australia where inflation is already
too high.
Speaker 1 (04:12):
Yeah, now this blockade that's happened, is this forcing you
to reconsider any of your forecasts.
Speaker 2 (04:19):
Look, we're watching these developments very closely. I mean every
day there's something new to keep in mind. I think
the main thing that we would take you from this
is at the moment, the key thing to watch for
is when does the flow of energy start again? When
does the strait of hormas really open up? And when
do we start to get the ships coming through? And
the longer that goes on, the longer it goes on,
(04:42):
the more disruptive it's likely to be. I think there's
still quite a bit of a lag between sort of
the fact that it's been closed now for about six
weeks and it hasn't and the actual impact it's going
to have on energy markets. There's a lag between those
things because if you think about it, the ships that
had left six weeks ago are now arriving at refineries. Well,
(05:03):
there won't be another set of ships to follow it necessarily,
and so I think this is going to play out
over the next few months, and as I say, the
longer it goes on, the more disruptive it's likely to be,
the larger downside risk it creates to the global growth
and to local growth as well. So it's obviously not
over yet because the Strait is still not open.
Speaker 1 (05:24):
Yeah too right, Paul, Thank you as always appreciate it.
We'll talk to you next week, Paul Bloxham, HSB Chief Economist.
Speaker 2 (05:30):
For more from Hither Duplessy Allen Drive, listen live to
news talks. It'd be from four pm weekdays, or follow
the podcast on iHeartRadio.
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