As the Middle East conflict enters its 12th week, new ASB analysis suggests the economic fallout for New Zealand is spreading well beyond the pump, with supply chain costs rising and household spending expected to come under further pressure.
“While the immediate effect has been higher fuel prices, that’s only one piece of the puzzle. The broader story is how the entire cost shock (which includes fertiliser and petrochemicals) spreads through supply chains, lifting the cost of manufactured goods, packaging, freight and farm inputs, and the flow on effects of that to consumer spending,” says Kim Mundy, Senior Economist at ASB.
Those pressures are already showing up in real costs for some businesses with freight operators providing the clearest early examples. Earlier this month, shipping giant Maersk applied a 27% fuel surcharge while the Interislander almost doubled its fuel surcharge for commercial vehicles crossing Cook Strait – increases likely to be felt across a broad range of New Zealand businesses.
ASB expects the initial inflationary pressure to be felt most acutely in food, freight, plastic products and other goods with high transport or packaging costs. At the same time, discretionary sectors such as retail, hospitality, arts and recreation may face softer demand as higher fuel costs reduce household spending power.
“The effects of the Strait’s closure reach further into the economy than may have first been apparent, with few sectors likely to escape entirely. Agriculture, manufacturing, construction and transport appear most exposed, but even less fuel-intensive businesses could be hit as households shift spending towards essentials. That creates another headwind for economic growth,” says Mundy.
“Roughly a quarter of our economy has a high, or very high, exposure to at least two of the key disruptions we analysed in our research so for businesses, the message is to look beyond direct fuel use and assess their exposure across suppliers, freight, packaging inputs and customer demand while the conflict in the Middle East persists,” says Mundy.
Other recent ASB reports covering a range of commentary, can be accessed at our ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html