Australia's business and consumer confidence crashed as the Iran war unleashed a global oil shock that may tip the local economy into a recession, surveys showed on Tuesday, as policymakers weigh if more rate rises are needed to tame inflation.
A survey from National Australia Bank (NAB) showed its index of business confidence tumbled 29 points to -29 in March, the second largest monthly fall in history, with the scale only seen in 2008 during the global financial crisis or in 2020 with the onset of the COVID pandemic.
Business activity, however, held steady at a still healthy +6.
A separate survey out on Tuesday showed consumer sentiment slumped by 12.5% to 80.1 in April, the lowest in more than two years. An index measuring appetite for large purchases plunged 15% as consumers tightened their wallets.
The two surveys added to concerns that both supply and demand shocks could put the Australian economy into stagflation, as warned by a central banker on Monday.
"We've got this problem for businesses now. Not only has their confidence collapsed and their costs are going up, but consumer confidence has collapsed and that's going to impact consumer demand," said Shane Oliver, chief economist at AMP.
"If the oil starts flowing through the Strait of Hormuz really quickly, then we probably avoid recession. But if it doesn't, then I suspect by the time we get to the end of next month, we'll have to see fuel rationing and that's when the economic impact really starts to bite."
Australia, which imports about 80% of its fuel, has experienced localised shortages and soaring prices since the Iran war broke out as it leans on its Asian allies to maintain fuel supplies.
The surveys also took place before the fragile ceasefire between the United States and Iran, with a deal to end the month-long conflict in the Middle East yet to be reached.
The higher energy costs were feeding through transport, utility and construction industries, with a measure of purchase costs for businesses jumping by a quarterly rate of 3% in March, up from 1.3% before, the NAB survey showed.
However, retail price growth fell to 0.5%, suggesting businesses may be struggling to pass through the higher costs to consumers.
The economic outlook has also been tempered by two consecutive rate rises from the Reserve Bank of Australia to 4.1% this year as policymakers worry the spike in fuel costs could unmoor inflation expectations over the medium term.
RBA Deputy Governor Andrew Hauser said on Monday that the central bank was closely watching consumption, which was growing but at a relatively slow pace.
"I don't think those surveys necessarily tell you a lot about what consumption is going to do. But if they're right, we have a big income shock coming our way... So it is the central bank's nightmare: the stagflationary shock - inflation up, activity down," Hauser said at an event in New York.
(Reporting by Stella Qiu; Editing by Edwina Gibbs and Sonali Paul)
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