A leading Australian economist has warned the “clock is ticking” on a recession as an “inflation mentality” floods the nation’s economy.
AMP economist Shane Oliver predicts Australia is on the doorstep of a recession as fuel and fertiliser becomes more expensive and scarce each day the Strait of Hormuz is closed.
“It’s like a the clock is ticking basically and it has been ever since the Strait of Hormuz effectively closed at the start of the war,” Mr Oliver told Seven’s Sunrise.
“And the longer this goes on, the longer the flow of oil out of the Strait is delayed or stopped, then the risk of recession grows in Australia.
“Right now we’ve seen the price effects gone up. That’s horrible, but it’s probably not enough to give us a recession.
“The recession could come if we actually start to run low on fuel, and therefore we have to restrict our usage.
“That then has an economic impact and potentially knocks us into recession through the second half of this year.”
The crucial Strait of Hormuz has been effectively closed since February 28, putting a chokehold on a large portion of the world’s oil supply.
Fuel companies hiked prices in Australia as the conflict began, forcing the federal government to temporarily slash the fuel excise tax and also commit to underwriting fuel shipments for the private sector.
The Strait is an export outlet for about one-third of the world’s raw fertiliser components, including 20 per cent of natural gas – used to make fertiliser too – and 20-25 per cent of the world’s maritime oil trade.
Westpac is among banks predicting the RBA will make a third, fourth and fifth interest rate hike this year to combat inflation which was already above its target before the start of the US/Iran war.
Once the forecast rate hikes are enacted in the coming months, Mr Oliver predicts a weakening Australian economy will then need interest rate cuts.
“As the economy slows down, if there isn’t an immediate reopening of the Strait of Hormuz, then of course, we’ll start to see the Reserve Bank refocus on weaker economic growth,” he said.
“And then as we go through next year, it’s quite likely we’ll be seeing rate cuts.”
The Reserve Bank defines a recession as a period of weak or negative economic output coupled with a significant rise in unemployment.
One widely-used barometer is two consecutive quarters of negative growth in real (adjusted for inflation) gross domestic product. Over the past three quarters – ending December 2025 – Australia’s per capita GDP has risen 0.5 per cent, 0.1 per cent, and 0.4 per cent.
