Morgan Stanley nails Turnbull’s economic blueprint

From Morgan Stanley:

First, the macro-economic challenges that perhaps contributed to the leadership change have to be noted. Australia faces a persistent drag from the transition from resources capex, of some-1.6ppt of GDP next year. As we’ve noted, the housing boom has been key to driving the transition thus far, with strong price and activity trends,and building approvals more than 10% above previous peaks. However, our concern for 2016 growth stems from the view that macroprudential works to moderate the housing cycle,and the
next growth driver would be hard to find amidst poor sentiment and both private and public investment intentions.

With the resources capex and to some extent housing headwinds baked in, our bull-case for growth (3.5% in 2016 and 3.9% in 2017) relies on more than just improved sentiment and a significant Chinese stimulus program.We would also need to see our Missing Fiscal Link (27 April 2015) scenario enacted, where the government actively deploys the up to A$80bn (5% of GDP) of fiscal headroom that we estimate Australia has under a AAA credit rating. We believe this would catalyse consumer and business confidence and likely see some’crowding-in’ of private investment.