As the reverberations of the Iran war are felt at Australian petrol pumps, farms and factories, talk of a looming recession is intensifying. But another, even more sobering, thought is being whispered at the highest level: we’re already in one.<\/p>\n
Follow the dictionary definition and we won’t have an “official” recession for some time. That milestone is reached when gross domestic product \u2014 the running tally of everything that occurs in Australia with a dollar value \u2014 falls for six months straight.<\/p>\n
Iran war live updates:<\/a> For the latest news on the Middle East conflict, read our blog.<\/p>\n But policymakers have to move faster than that, so they look for early warning signs \u2014 businesses scaling back, workers stood down, customers spending less.<\/p>\n Some of those signs are here. Motorists are conserving fuel to avoid high prices. Businesses have become more cautious about production pipelines in light of the added uncertainty. And the financial confidence of households is at an all-time low.<\/p>\n Act natural<\/p>\n So far, the approach of governments has been to urge people to carry on as if these were normal times. This is not because politicians are complacent about the risk, but rather because they know that panic, already evident in some quarters, makes matters worse.<\/p>\n Australia’s four-step plan to survive fuel crisis<\/a><\/p>\n Fuel could be rationed and funnelled towards critical sectors such as emergency services under worst-case-scenario plan.<\/p>\n Projecting confidence is important in a crisis. So is taking action to bolster confidence, as the federal government is doing with a wide array of unconventional measures to get more fuel into the country, and to the places within the country where it is most needed.<\/p>\n For as long as there is no nationwide fuel shortage \u2014 that is, as long as the ships keep coming \u2014 this might work, even if stubborn, localised shortages persist in regional areas.<\/p>\n But the longer the war drags on, the more likely that people and businesses will make up their own minds that things are not normal and begin to scale back their spending and operations, not because they are panicking but because they are rational.<\/p>\n LoadingHow recessions happen<\/p>\n For businesses and for households planning their financial future, risk is a cost. If there is a good reason to expect fuel availability will worsen in the coming months, it’s sensible to plan accordingly and do less today \u2014 buy less, make less plastic, plant fewer crops.<\/p>\n Government halves fuel excise<\/a><\/p>\n The government has halved the fuel excise on petrol and diesel for three months, reducing the cost of fuel by 26.3 cents per litre.\u00a0<\/p>\n That is exactly what several industry lobbies are warning is happening in their respective sectors, including the National Farmers Federation, the Master Builders Association, the Australian Trucking Association and the Australian Industry Group.<\/p>\n And it is what is reflected in the ANZ-Roy Morgan consumer confidence survey, which asks people whether they expect good or bad times for the economy, and whether it is a good or bad time to make major purchases. This week’s answer: it’s as bad as ever.<\/p>\n This is the vicious logic by which recessions start, with decisions to shut up shop or hold back spending that make sense at the individual level but are disastrous at the economy-wide level.<\/p>\n It is exactly what happened last time. In the pandemic recession of 2020, it wasn’t the virus itself or even the lockdowns that precipitated the slump. It was people choosing to stay home and restaurants closing their doors due to fear of the virus.<\/p>\n The same logic applies to the spectre of fuel shortages. And if the chill sets in, jobs and dollars will be lost, and Australia will become poorer. The closer it comes, the more likely the government will have to consider more drastic interventions.<\/p>\n Confidence is key<\/p>\n Manufacturing and maintaining confidence are at the heart of every crisis playbook.<\/p>\n During the global financial crisis, this was done by underwriting the banking system and giving people money to spend. During the pandemic, it was the JobKeeper payment that reassured businesses that they could afford to keep their staff through lockdowns.<\/p>\n