Both HSBC and Commsec have come out with notes today predicting a boost to confidence and the economy should tomorrow’s election culminate in a clear mandate for Government.
First, HSBC:
Overall, the two major parties are not announcing wholesale changes to the economic or regulatory landscape in the near-term. As such, a change of government is unlikely to have major implications for the growth, currency or interest rate outlook.
More broadly, neither major party has announced major changes to the revenue or expenditure structure of the Australian fiscal system. Australia currently has a structural budget deficit that is expected to persist at least until 2017/18. As a result, the next government is likely to face some tough choices on the structure of Australia’s tax system and the sustainability of government expenditure moving beyond the next parliamentary term.
More importantly, whoever wins the upcoming election, the completion of the election itself could provide a boost to the economy.
Julia Gillard, the former Prime-Minister and leader of the Labor Party, took the unusual option of announcing the 2013 election nine months in advance. While her replacement by Kevin Rudd changed the election date, businesses have now sat through around eight months of uncertainty over the post election regulatory environment. This has been one factor that may have held back business confidence and conditions recently (Chart 2). In addition, firms have likely held of hiring and investment until they have more certainty over the political landscape.
And Commsec:
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Removal of uncertainty is important for investors, businesses and consumers. Over the past five Federal Elections, both the sharemarket and Aussie dollar have been broadly flat, to slightly lower in the lead up to the poll. A similar trend is in evidence this election period. But in the past five elections both the Australian dollar and the sharemarket have lifted in the three weeks after the poll.
The best outcome on Saturday will be a clear election result. There are good reasons to expect a stronger Australian economy once election uncertainty is resolved…
CommSec expects the economy to lift once election uncertainty is removed. Certainly the housing market is already showing encouraging signs; next we would hope to see some improvement in consumer spending, business confidence and employment.
If there is a clear election result, we would certainly expect the sharemarket to lift. The Aussie dollar is a bit more problematic with Syria and US monetary policy key influences together with domestic politics. But if the Australian economy lifts, the Reserve Bank would be more reluctant to cut rates again, supporting the Aussie dollar.
Certainly there are no fears associated with a change of government. The Liberal Party/National Party coalition have had a good track record in the past as economic managers and the rigorous detail of policy costings have further engendered confidence.
My own view is that there will be a short-term “sugar hit” to confidence as the new Abbott-led Government enjoys a customary honeymoon period. However, Australians will then come to the realisation that nothing much has changed, and Australia’s deteriorating fundamentals – most notably the unwinding of the commodity price and mining capex booms – will reassert themselves.
We should also not kid ourselves about the underlying reasons behind Australia’s poor business confidence, which began falling well before the election was called. It has little to do with the election boogeyman, and more to do with Australia’s overall declining competitiveness, in part due to the high value of the Australian Dollar, as well as the stiffening structural headwinds relating to the wind-down of the once-in-a-century mining boom, and the new found “consumer caution” in the wake of the 25-year credit boom.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
