Westpac boss Anthony Miller warns ‘a chance of a recession’ as interest rates, inflation rise

Australia needs to prepare for a chance of a recession, a Big Four bank boss has warned, as the Middle East standoff sends inflaton higher and wreaks havoc with State and Federal budget plans. In the first comments from a senior bank executive about the growing risk, Westpac chief executive Anthony Miller said Australia needed to acknowledge “circumstances have changed so much that a recession is a chance”. “I think there’s a chance of a recession. I think we need to acknowledge that,” Mr Miller said in an interview released on Friday. “The classic technique by which people would focus on slowing down demand was to push economies into recession. “It’s much more complicated today because of events in the Middle East over the last few months than it would otherwise have been, and so I think it puts more pressure on how (the Reserve Bank of Australia) can get us through this environment without falling into recession.” The RBA has already delivered two successive interest rate rises this year and Mr Miller expects more could come. Oxford Economics has predicted a “sharp recession” and fuel rationing by September if the Middle East conflict continues. In its worst case scenario modelling, the price of global benchmark Brent crude oil would peak at $US190 a barrel by August. “In this scenario, the Australian economy would suffer a sharp recession” report author Harry McAuley said. “We estimate GDP would contract 0.3 per cent in the June quarter as inflation soars and fall a further 0.8 per cent in the September quarter as fuel rationing begins.” If that eventuated, it would be the sharpest quarterly fall since the early 1990s, excluding the pandemic downturn of 2020. There was some good news on Good Friday, as the Cook Government confirmed it was getting more co-operation from all six fuel companies subject to strict new orders after a state of emergency was declared under the Fuel, Energy and Power Resources Act. The regulations published online revealed a new deadline of 5pm on Wednesday for six suppliers — Viva Energy, Ampol, Chevron, United Petroleum, Mobil Oil and BP — to reveal the volume of fuel they have stockpiled, any excess, and where bulk allocations have gone. “While the deadline for this information has not yet passed, (the) fuel companies have provided us with a level of detail, demonstrating these emergency powers have had an immediate effect,” Energy Minister Amber-Jade Sanderson said. It’s the first time those emergency powers have been used, with potential penalties of $100,000 per day. Premier Roger Cook said it was necessary, after three of the six fuel suppliers failed to respond to his initial deadline to volunteer the information. A fourth replied within hours of the emergency declaration. It’s unclear whether all the requested information has been provided. Viva Energy, United Petroleum and Mobil Oil Australia are yet to respond to requests for public comment. “I thank the sector for their responsiveness over the last few days and we will continue to work together to get the information we need get fuel to where it’s needed most, including the farmers and small miners in the Wheatbelt and Goldfields,” Ms Sanderson said. But it’s unlikely to be enough to permanently rein in petrol prices that, economists say, are driving inflation too high. Earlier this week, Westpac chief economist Luci Ellis — a former Reserve Bank assistant governor — tipped the RBA to hike interest rates in May, June and August. The peak for the cash rate is now expected to hit 4.85 per cent. Mr Miller said one more rate rise would take Australia back to the position it was in before the RBA started cutting rates last year, with the cash rate at 4.35 per cent. “It wouldn’t be any worse than what it was last year. Albeit I think the world has moved and continues to move in strange and unusual ways . . . other stressors are coming through for (the) consumer,” Mr Miller told the ABC. “We would anticipate that certainly after the next interest rate rise and if there is another needed, that would go some way to slowing the economy in the way the Reserve Bank wants to obviously deliver the reduction in demand to . . . pull back on inflationary challenges for the economy.” It comes as the central bank and Treasurer Jim Chalmers brace for inflation — now at 3.7 per cent — to soar to 5 per cent this year for the first time since 2023, during the last rate hiking cycle, as a result of the Middle East conflict pushing fuel prices higher. This would occur as unemployment, now at 4.3 per cent, potentially climbed to 5 per cent for the first time since the COVID lockdowns in late 2021. In that context, Australia would be suffering from stagflation, University of New South Wales economics professor Richard Holden said, because they would both be above the RBA’s inflation and labour force targets at the same time. Some economists, like HSBC’s Paul Bloxham, say Australia is unlikely to have a recession but the combination of interest rate hikes and rapidly rising and constantly high oil prices would severely hurt consumer spending.