Everyone’s watching Donald Trump and the Iran war for the next trigger of an Australian recession. Bond market expert Chris Joye reckons they’re watching the wrong thing entirely.
Given the Albanese Government’s unique ability to target voters with offerings that are more political or social rather than economically responsible, Treasurer Jim Chalmers was briefed by departmental economists on whether the Iran war could throw us into a recession. While the answer was “yes”, there’s another road to recession, which bond expert Chris Joye has surprisingly revealed.
In a surprising revelation in an extensive interview I did with Joye, who founded Coolabah Capital Investments that manages over $20 billion worth of other people’s and institutions’ funds, he thinks immigration could cause a recession!
And it’s not because there are too many immigrants but too few! More on that later, after I look at what Treasury’s crystal ball told Chalmers.
Here goes:
- A prolonged Iran war because of a Trump-Iran standoff could force up the oil price.
- Oil at US$200 a barrel could trigger an economic collapse here and undoubtedly around the world.
- Also, inflation would be higher than current levels and could peak at 7.5%.
- The combination of the blockage of the Strait of Hormuz and now Houthis attacking ships on the Red Sea could lead to the US$200 a barrel scenario if the current situation doesn’t change for the better.
- The fact that global strategic reserves have been run down in the first phase of the war and Russia has banned diesel exports has added to the pricing pressure on oil.
The Daily Telegraph revealed this from the Treasury briefing: “The current situation affects more Gulf output, placing additional pressure on inventories to meet supply shortfalls. Global inventory levels have declined since the conflict began … If inventory shortages do occur, these are expected to emerge sporadically across facilities.”
The simple economic story Treasury has hatched out looks like this: Iran war escalation leads to higher oil prices leads to higher inflation and higher interest rates and that sows the seed of a recession.
The pressure is on Donald Trump to solve this problem. Overnight, the President said there would be a 10-day period of break in hostilities, though Iran denied this. However, oil prices did fall, and stock markets went up.
This story has more hip pocket consequences as the Government’s fuel excise cut ends next week and the Treasurer isn’t talking about extending it, which won’t be great for inflation. In fact, we see the June CPI data for the recent inflation news tomorrow at 11.30 am, which will be crucial to what the RBA does on August 11.
And now to the other road to recession, as sketched by Chris Joye.
He argues that the Albanese Government has allowed 1.5 million immigrants into the country, which has pumped up demand and powered the surge in inflation and, ultimately, house prices as well, which is a problem that the Treasurer has tried to remedy with his recent Budget.
Joye adds that money wasted on an explosion of the public service, the NDIS and other wasteful projects has added to our economic predicament and helps to explain the rising popularity of One Nation.
He expects immigration to become the serious battleground in politics ahead of the 2028 election and any serious pullback on immigration might help inflation but could throw Australia into recession.
AMP’s economics team has looked at the role of immigration and explained it this way: “Immigration has significantly shaped Australia’s population growth for decades. This has boosted GDP and the labour force, without negatively affecting labour market outcomes because it adds to both the demand and supply for labour.” They added: “Immigrants in Australia tend to be younger and more educated than the native population, which leads to better productivity and wages over the long term. However, they are also more concentrated in major cities where competition for housing and infrastructure is already intense.”
If Joye is barking up the right tree, we’ll need some pretty enlightened leadership from Canberra to get the immigration story right, and hopefully that coincides with Donald Trump finding a road to peace with those challenging guys from Iran and now Yemen.
At the moment, I’m not seeing leaders anywhere who are raising my hopes on any of these fronts!
You can catch my interview with Joye here: https://switzer.com.au/christopher-joye-why-australia-is-headed-into-economic-strife/
