The global economy was already teetering on the edge of a potential recession before the Middle East war erupted, and now the situation has taken a turn for the worse. The war has triggered a fuel crisis, causing high petrol prices and fuel shortages that are hitting economies hard. Australia, which was already struggling with inflation, is particularly vulnerable. The Reserve Bank of Australia (RBA) Governor has openly discussed the possibility of a recession, while the Treasurer denies it. Australia's situation is different from America's, as the country has been battling inflation for months. The RBA has responded by hiking the cash rate, making Australia and Japan the only developed countries in a tightening cycle. The war has made this tightening worse, and the big four banks are now predicting another hike in May. The real risk to Australia, according to some experts, is not inflation, but fuel shortages that are strangling the economy. Australia is a net energy exporter, but if Asian countries start prioritizing domestic demand, the country could be cut off from diesel within the next month. This could lead to a private credit crisis, as investors try to make withdrawals from the $2 trillion private credit industry at once. However, some experts believe that Australia is well-placed to handle the energy shocks, due to its solid employment and commodity export status. The country's strong labor market and tilt in demand toward domestic goods and services could actually lead to GDP and employment growth during an oil shock. But the question remains: can Australia weather the storm and avoid a recession?
