Australian economy: HSBC’s Paul Bloxham warns June quarter downturn looms amid war and rate hikes

A top analyst warns Australia’s economy could go backwards in the next three months as families feel the pinch from US President Donald Trump’s Middle East war and rising interest rates.

But HSBC’s Paul Bloxham said a recession remains unlikely despite the pain at the bowser and back-to-back Reserve Bank rate hikes.

Mr Bloxham said the combined impact of higher mortgage payments and petrol costs would cut disposable income by 1.8 percentage points for most families, driving their spending lower.

“Despite the high uncertainty, we think enough has happened both locally and globally that it is more likely than not that Australia’s GDP will fall in (the June quarter),” he said.

“The longer (the Middle East war) goes on, the more disruptive it will be.”

Yet he said an economic downturn might prove necessary to get inflation back under control and hit the RBA’s 2.5 per cent target — after core inflation ran at 3.3 per cent in the year to February.

Mr Bloxham said consumer confidence had been shaken and auction clearance rates were down.

“It is also worth keeping in mind that Australia’s economy has lots of adjustment mechanisms,” he said.

“The Australian dollar is a key shock absorber, government debt levels are comparatively low, which should allow some flexibility on fiscal policy, and the RBA has a powerful policy tool it can deploy as needed.”

Exports were set to remain strong thanks to Australia’s position as an energy superpower, which would help support the economy.

Financial markets tip two to three more rate hikes by the end of the year.

Commonwealth Bank’s card data shows consumer spending remained resilient through March.