Australia is expected to navigate the global oil supply shock without entering a recession, according to economists, although they warn of sub-standard growth in the year ahead.
The de-escalation of the Middle East conflict has led to a significant retreat in global oil prices, which have returned to pre-war levels, removing the worst-case scenarios previously contemplated after Donald Trump’s ceasefire with Iran was announced in mid-June.
Belinda Allen, CBA’s head of Australian economics, stated that she had never thought a recession was likely, but noted that “the impact of the war on energy markets and the economy were less severe than we had anticipated”.
“Oil prices did not rise as much, and the cut to the excise tax blunted the impact on households,” Allen added.
Global oil prices, which spiked at $US120 a barrel, have steadied at about $US72 a barrel, and CBA analysts predict they will drop to $US60 by the end of the year, despite the high risk of the war flaring up again and disrupting traffic through the Strait of Hormuz.
High inflation remains a major threat, although it is falling, with a current rate of about 4%, down from the May budget’s forecast peak of 5%. Unemployment has increased slightly over the past three months to 4.4%.
“We think no more [Reserve Bank] interest rate hikes are needed, but we still see some lingering risks there,” Allen said.
A major downturn may have been averted, but Tim Robinson, an associate professor at the Melbourne Institute of Applied Economic and Social Research, warned that GDP per person is set to contract for two straight quarters.
“Growth is likely to be quite weak for the rest of the year, and because of that, a per capita recession is likely,” Robinson said.
“They [per capita recessions] are not as severe as a conventional recession – the changes in unemployment tend to be far less severe – but they do constitute a decline in living standards.”
Stephen Smith, a partner at Deloitte Access Economics, stated that his firm had rarely had such a pessimistic outlook for the country’s near-term economic trajectory.
That pessimism is mirrored among households, where consumer confidence is at around a 50-year low as many Australians struggle to cope with substantially higher prices after years of above-average inflation.
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“At the same time, the three interest rate increases so far in 2026 mean that households with an average-sized mortgage have needed to find an additional $350 per month to meet higher repayments,” Smith said, warning that the RBA could hike again next month.
Falling house prices in some parts of the country, most notably Sydney and Melbourne, are also weighing on sentiment and making Australians less likely to spend.
While Allen also sees weak growth this year, “the good news is
