Australia’s manufacturing sector is expected to remain under pressure from the ongoing global energy crisis, even if tensions in the Middle East ease soon, according to the Australian Industry Group, which says the effects on inflation, investment and business activity are likely to persist for months.
In a new research note, the national employer association said the disruption to global energy supplies linked to the Iran conflict would have a “long tail” for the Australian economy, with manufacturing among the industries facing the greatest impacts.
Australian Industry Group chief executive Innes Willox said businesses and households had already felt the effects of higher fuel prices after a significant share of the world’s oil and gas supplies was disrupted through the Straits of Hormuz.
“The Iran energy crisis will have a long tail of impact on the Australian economy, with impacts for industries and households likely to persist for months yet,” Mr Willox said.
He said Australia remained vulnerable because it imports around 90 per cent of its liquid fuels and also relies on imported industrial commodities such as urea, plastics and other industrial chemicals, which have also experienced price increases.
“Australia, which imports 90% of our liquid fuels, has suffered from an inflationary spike driven by surging fuel prices. We are also exposed on industrial commodities, relying on imports for urea, plastics and other industrial chemicals which have seen similar price rises,” Mr Willox said.
While fuel prices and inflation moderated in May, Mr Willox said this had been partly driven by temporary government measures, including international fuel stockpile releases and Australia’s fuel excise cut.
“These policy supports cannot and will not last indefinitely,” he said.
According to the research, Australian Industry Group expects ongoing uncertainty surrounding the conflict and damage to energy infrastructure in the Middle East to delay a return to normal global energy supply conditions.
The organisation also warned of broader economic consequences as businesses pass on higher fuel costs through increased prices for food, consumer goods, construction and transport-dependent products and services.
Citing Australian Bureau of Statistics data, Australian Industry Group said two-thirds of businesses had changed their operations in response to the energy crisis, while almost one in six had cancelled investment plans and one in 10 had reduced their workforce. It said the effects had been more pronounced across agriculture, manufacturing, construction, transport, and accommodation and food services.
Mr Willox said businesses would continue to face challenging conditions even if the conflict were resolved qickly.
“Australia is far from out of the woods, with many of the toughest impacts still to come. Policymakers must keep a close eye on the energy crisis and be ready to act to avert worse outcomes for business, households and the economy,” he said.
The Australian Industry Group’s research note says the crisis is expected to continue weighing on economic growth, business investment and household spending over the remainder of the year.
