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Middle East Conflict to Weigh Modestly on Growth, Slower GDP Growth Expected, Says RBA Governor

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Reserve Bank of Australia Governor Michelle Bullock said on Thursday that the Middle East conflict's economic impact would vary across countries, but for Australia, she expected it to weigh modestly on growth, worsening the trade-off between inflation and economic activity.

In a statement before the Senate Economics Legislation Committee, Bullock said the rate increases delivered so far in the year were necessary to tighten financial conditions and cool demand, and that early signs suggested the tightening was beginning to take effect, though the full impact would take one to two years to flow through the economy.

The central bank expects gross domestic product growth to slow this year under the weight of higher interest rates and the Middle East conflict, with unemployment forecast to rise over the coming year but remain below pre-pandemic levels.

Bullock noted investment had been a recent bright spot, with growth expected to continue in areas with strong structural tailwinds, such as software, data centers, and renewable energy.

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