{"id":431330,"date":"2026-05-17T01:10:48","date_gmt":"2026-05-17T01:10:48","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/431330\/"},"modified":"2026-05-17T01:10:48","modified_gmt":"2026-05-17T01:10:48","slug":"the-pain-of-trumps-war-could-get-even-worse","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/431330\/","title":{"rendered":"The pain of Trump\u2019s war could get even worse"},"content":{"rendered":"

May 11, 2026 \u2014 5:35pm<\/p>\n

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Investors appear to have convinced themselves that the worst of the war-induced energy crisis is largely over, based on some recent records notched up on global markets.<\/p>\n

The world\u2019s two biggest sharemarkets \u2013 those in the US and Japan \u2013 both hit all-time highs last week, while Australia\u2019s market wasn\u2019t too far off its previous peak, either.<\/p>\n

\"EvenEven if US President Donald Trump can reach an agreement to end the war, the impact of it is set to be felt long into the future.AP<\/p>\n

Of course, there is still volatility day-to-day, but the overwhelming sense lately has been that equity investors are in an optimistic mood.<\/p>\n

So, does that mean the most unpleasant economic effects of Donald Trump\u2019s military foray are also behind us? Unfortunately, it\u2019s not that simple.<\/p>\n

Don\u2019t let recent sharemarket bullishness mislead you: there\u2019s still some way to go before the energy crisis is finished. Even if Trump is able to strike a lasting peace deal \u2013 a big if \u2013 we won\u2019t know the full impact of the war on our actual economy (as opposed to the sharemarket) for quite some time.<\/p>\n

It\u2019s almost become a cliche for business types to bemoan the uncertain outlook but lately they have been right. No doubt Treasurer Jim Chalmers will reiterate such warnings about the uncertain economic times in which we are in his budget speech this week.<\/p>\n

Related Article\"A<\/a><\/p>\n

Three of the country\u2019s biggest banks also warned of a highly uncertain future in their recent profit results, highlighting the risk that economic conditions could possibly get worse in the future. Our biggest financial institutions often have a \u201cglass half full\u201d view of the economy as it\u2019s not in their interest to talk things down. Why are they so cautious when sharemarkets have generally been more upbeat?<\/p>\n

Part of the answer is that sharemarket investors are taking a view on the future and the prospect of peace, whereas banks need to be prudent and prepare for the risk their loans aren\u2019t repaid. But a bigger factor is that economic shocks don\u2019t just have one easily measurable effect on the economy; they have all sorts of ripple effects that won\u2019t be visible for months.<\/p>\n

Independent economist Saul Eslake explains that for every conceivable economic shock there are \u201cfirst-round\u201d effects, followed by \u201csecond-round\u201d-and-later effects, as millions of people and firms change their behaviour.<\/p>\n

The first-round effects in this oil shock were simple enough. The cost of petrol soared, which meant many of us had to spend more on fuel. Some businesses, such as airlines, ride-share firms and supermarkets, raised some prices in response to higher fuel costs, and other businesses will no doubt join them. It\u2019s been predicted the cost of building materials will also get pushed up, for example.<\/p>\n

What\u2019s less simple, however, is how consumers and businesses might change their behaviour in response to those higher prices.<\/p>\n

\"We\u2019reWe\u2019re yet to feel the full economic effects of the closure of the Strait of Hormuz.AP<\/p>\n

Will consumers spend less on other things because petrol is costing them more? Could affected businesses not just raise prices but start cutting back on the shifts they give staff? Or, in extreme cases, might some firms even go to the wall?<\/p>\n

There are no simple answers to any of these questions but a lot will depend on how long the shock lasts.<\/p>\n

Related Article\"Fuel<\/a><\/p>\n

If fuel costs quickly return to more or less where they were before the war, you wouldn\u2019t expect major behavioural changes from firms or households. But if the price shock is prolonged, people and firms will need to make changes.<\/p>\n

Economists say that, so far, there\u2019s only been a modest response from consumers to the petrol price shock. Banks that monitor our spending debit and credit cards have detected a small squeeze on non-fuel spending but it is far from dramatic.<\/p>\n

But if fuel costs remain high, and other goods also rise in price, the pullback by consumers would get more pronounced. And some believe we\u2019re getting close to the point where more people might decide to cut back more their spending.<\/p>\n

ANZ Bank\u2019s group chief economist Richard Yetsenga says it looks as though during March, consumers in many economies chose to run down their savings to cover the higher fuel costs. He says if fuel costs remain high in May we might see more \u201cdecisions to cut expenditure elsewhere because of the cost of energy\u201d.<\/p>\n

In a scenario where consumer spending weakened a lot, it would start to become a bigger economic problem because this would hit businesses that depend on our expenditure. Firms might then need to respond by cutting costs, such as giving their staff fewer hours, or even cutting jobs, thereby turning a price shock into an employment shock.<\/p>\n

\"IndependentIndependent economist Saul Eslake says that for every conceivable economic shock there are \u201cfirst-round\u201d effects, followed by \u201csecond-round\u201d-and-later effects, as millions of people and firms change their behaviour.Alex Ellinghausen<\/p>\n

Thankfully that hasn\u2019t happened, it\u2019s only a scenario. Australia is also more fortunate than other, less wealthy countries, where energy costs inflict a bigger hit on household budgets.<\/p>\n

But the important point is that all of this can take months to play out. That\u2019s why we don\u2019t know yet if the energy shock will trigger a serious economic downturn, or not.<\/p>\n

One thing we do know, however, is that the longer there are blockages in the global supply of oil out of the Middle East, the higher the risk of a significant slump.<\/p>\n

Economic shocks don\u2019t just have one easily measurable effect on the economy; they have all sorts of ripple effects that won\u2019t be visible for months.<\/p>\n

A key reason financial markets have been fairly optimistic lately is because they are betting that the war will end soon enough, allowing flows to resume through the Strait of Hormuz. They may well be right, which would be a welcome reprieve for the world economy.<\/p>\n

But if they\u2019re wrong, and the strait remains closed for much longer, things could well deteriorate.<\/p>\n

ANZ, for example, is forecasting that we\u2019re in the peak phase of the oil shock and that energy prices will come down later in the year. This view is based on transits resuming through the Strait of Hormuz. But what if the strait remained effectively blocked for another month? Yetsenga says that would be a \u201csignificant problem\u201d.<\/p>\n

\u201cI hope we\u2019ve seen the worst of it but the oil is still not flowing through the Strait of Hormuz, and so that\u2019s unquestionably the elephant in the room,\u201d he says. \u201cI think we can say with confidence, if the oil doesn\u2019t flow, the economic impacts will get worse.\u201d<\/p>\n

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The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning<\/a>.<\/p>\n

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\"ClancyClancy Yeates<\/a> is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X<\/a> or email<\/a>.From our partners<\/p>\n","protected":false},"excerpt":{"rendered":"May 11, 2026 \u2014 5:35pm Save You have reached your maximum number of saved items. Remove items from…\n","protected":false},"author":2,"featured_media":431331,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-431330","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/431330","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=431330"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/431330\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/431331"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=431330"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=431330"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=431330"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}