Recession is a ‘meaningful risk’ but isn’t the most likely scenario according to Professor Alan Duncan

A recession in Australia over the next three to six months is a “meaningful risk”, but is not yet the most likely scenario, according to a top WA economist. Professor Alan Duncan, Director of the Bankwest Curtin Economics Centre, said recent energy shocks linked to the Iran war “have certainly shifted the balance of probabilities of technical recession or stagflation”. Stagflation is the unwanted combination of slow economic growth, rising unemployment and inflation. “Australia delivered economic growth of 0.8 per cent in the December 2025 quarter — which drops to 0.4 per cent quarterly growth on a per capita basis,” Prof. Duncan said. “We should prepare for weakened growth in the March 2026 quarter — perhaps 0.4 per cent to 0.6 per cent growth — despite the Iran conflict only affecting global market from early March.” Anything below 0.4 per cent GDP growth will move Australia into negative per capita growth territory, he cautioned “A recession in Australia over the next three to six months is a meaningful risk — and has clearly risen due to recent shocks — but I don’t think it’s yet the most likely scenario,” Prof. Duncan said. “The Reserve Bank of Australia and most private sector forecasts still expect positive GDP growth through 2026. A technical recession is certainly not beyond the realms of possibility, but only if the Iran conflict extends. “In my view, we’re most likely to see a contraction in the June quarter and — predicated on the Iran conflict ending within the next three months — a return to positive growth in the third quarter of 2026. But even if we don’t see a technical recession, Australia still faces a far higher risk of stagflation. “And household consumption is a factor here. With rising prices, fuel costs and rate rises from the RBA conspiring to affect consumer spending, this will add to a slowdown in economic activity.” Prof Duncan said the duration of the war was at the centre of the uncertainty and made it very challenging to forecast impacts. He had some advice for younger business owners. “(They) shouldn’t panic, but they should prepare now for an economic slowdown in a targeted, disciplined way,” he said. “Whether or not we hit a technical recession, there is definitely merit in building cash-flow resilience, ideally with an operating buffer of three to six months if possible. And maybe look at shorter payment terms for receivables. Both should add resilience and extend the operating runway. “Businesses that show resilience to downturns are typically the ones that move early before conditions deteriorate.” George Verikios, Professor of Economics at Griffith University in Queensland, doesn’t envisage a recession. He said the current turmoil strengthened the case for electrifying Australia’s economy faster and investing in renewables. “Renewables and storage already contribute more than 50 per cent of supply on Australia’s main electricity grid,” he said. “Every dollar invested in domestic renewable capacity permanently reduces Australia’s exposure to the next oil shock.” Earlier this week Treasurer Jim Chalmers played down warnings from a former secretary of his department who has predicted Australia is “staring into the risk of stagflation” because of the war-caused oil crisis. Dr Martin Parkinson, who served as Treasury boss during the Gillard and Abbott governments, made the assessment during a National Press Club address. Dr Chalmers said he believed Dr Parkinson’s assessment had failed to “accurately capture our strengths, particularly in the labour market”. Iran’s closure of the Strait of Hormuz and damage to regional infrastructure had caused the largest disruption to the global oil market in history, given that 25-30 per cent of global oil and 20 per cent of liquefied natural gas normally passed through the narrow waterway, according to the International Energy Agency. The war’s impact would depend on how long it lasts, how far it spreads and how much damage it inflicts on infrastructure and supply chains, the International Monetary Fund said.