Key insights
- Australian Treasury forecasts higher inflation and lower GDP growth due to the Middle East conflict's impact on global oil and commodity prices. Scenarios with oil at $100 and $120 per barrel were analyzed, projecting increased inflation and reduced economic output. While focused on Australia, the analysis highlights potential global economic headwinds, indirectly bearish for US equities due to potential global slowdown.
SYDNEY, March 18 (Reuters) - New analysis from Australia’s Treasury on Wednesday forecast higher inflation and a bigger economic hit from the ongoing conflict in the Middle East, that has unleashed a global oil shock and driven up commodity prices.
The Treasury considered two scenarios in its latest analysis that incorporated lower global growth and higher prices for LNG, coal and fertilisers, said Treasurer Jim Chalmers.
In a short-term scenario where oil prices stay at the current $100 a barrel for the first half of the year and gradually return to pre-conflict levels by year-end, inflation will peak 0.75 percentage point higher and economic output will be 0.2% lower.
In a more prolonged scenario where oil prices reach $120 per barrel in the first half of the year and then take three years to return to pre-conflict levels, inflation would be 1.25 percentage points higher and the economy would take a longer term hit, with GDP 0.6% lower around 2027.