Kelly Eckhold: Westpac Senior Economist on the potential impact of the conflict in the Middle East on NZ's economic recovery

New Zealand's economic recovery could be put at risk by disruption in the Strait of Hormuz.  

Westpac modelling shows if it was to stay closed for a month, it would put inflation over 4% and knock half a percent off GDP. 

Senior Economist Kelly Eckhold told Mike Hosking we're much more vulnerable than Australia when it comes to energy.  

He says we only have a few weeks of key petroleum products sitting in the tanks, and after that we’re relying on boats turning up to meet our needs. 

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Episode Transcript

Speaker 1 (00:00):
We're starting to get new forecasts around the economic impact
of the Iran incursion West pack of model. For example,
if the strait of a move shuts for a month,
oil could hit one thirteen a barrel. It eventually results
in a hard point being knocked off the GDP and
puts our inflation above four percent. Now, Kelly Echol, that
Westpac chief economist, of course, has done these numbers for us,
Kelly Morning, good morning. How fluid is this? I mean

(00:21):
best and overnight jaw bones oil and it's settled. Does
that unsettle your numbers?

Speaker 2 (00:26):
Well, I mean I think the whole situation is quite fluid,
which is why if you look at our estimates, they
have really wide confidence bands, because we don't know how
long it s will last, how high the oil price
will go, and critically how quickly it will take the
trade to start to transit in an out of the Gulf.

Speaker 1 (00:44):
Yeah, if it's do you have a timeline in mind
in terms of if it's two weeks or less, there's
a spring, if it's eight weeks there's a slow burn back.

Speaker 2 (00:57):
I think that if it gets up to eight weeks,
it'll start becoming a pretty serious situation, right, now no
oil and gas is transiting through the region, and that's
going to have pretty big knock on effects to our
big industrialized trading partners up in East Asia who are
critically dependent on that gas and oil coming out of there.

(01:20):
That could really depress their output, and that would have
knock on effects in New Zealand as well as whatever
business and consumers make of it all. And whether there's
the potential there. That confidence really takes a big step back.

Speaker 1 (01:32):
I was reading something similar in Australia yesterday. See Australia's
got l energy and coal, so therefore their price is rise,
so that gets offset with the oil they can't get.
We don't have any of that. I mean, we're just
so little and so vulnerable, aren't we.

Speaker 2 (01:44):
That's right from an energy security perspective, we don't really
have that backstop. We've only got a few weeks of
key petroleum products sitting there in the tanks. After that,
we're really relying on the boat turning up afterwards to
kind of meet our needs. Afterwards, MB tells us that
they've got contracts in place for that. But in a

(02:05):
war situation, there's always going to be a degree of uncertainty.
Whereas the Australians do have some gas basically that they
can use for their own purposes if necessary.

Speaker 1 (02:14):
Indeed, the numbers that you put yesterday they didn't strike
me to be honest as alarming. At what point should
we become I mean, in terms of GDP and C
behind all that sort of stuff, At what point should
we become alarmed?

Speaker 2 (02:26):
I mean, I think if we're still sitting here in
say six weeks, and there hasn't been any progress, so
I think it'll be pretty alarming. I mean, the numbers
that we've estimated are imprecisely vetted, because it really does
depend on the degree of other factors that are going on.
For example, confidence is a very big impact in some

(02:48):
of these models, so it's also inflation expectations. So you know,
you could easily imagine that there could be bigger impacts
if I look at, say the confidence impact on business
confidence in the early nineties and the seventies in New
Zealand that had much larger impacts on GENDP.

Speaker 1 (03:08):
But also a different world though, absolutely.

Speaker 2 (03:11):
Yeah, so you can't necessarily translate that through to where
we are today.

Speaker 1 (03:15):
Yeah, Kelly, good to talk. You appreciate it very much
Kelly you cold Westpac chief economists. For more from the
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