"The Middle East conflict clouds the economic outlook. The closure of the Strait of Hormuz has lifted energy prices and inflation, with economic impacts dependent on the war’s intensity and duration. Our benign scenario assumes the Strait reopens by June, causing a temporary lift in inflation and modest upward pressure on policy rates. However, spillovers to other commodities and global supply chains raise the risk of a more malign outcome. An extended conflict into next year, the malignant scenario, would keep energy prices elevated, lift inflation expectations and force aggressive central bank tightening, pushing the economy into recession.

Our base case is aligned with the benign scenario. Global growth slows through 2026 as inflation rises. In Australia, higher inflation and RBA rate hikes will weigh on activity, but the underlying resilience of households and businesses make a recession unlikely."

Dr Matthew Peter, QIC Chief Economist