ESSA

ESSA

The Coalition’s first week signals a promising economic future


Emily Vuong

By

September 20th, 2013


Consumer and business sentiment has risen on the back of Tony Abbott’s election win. Emily Vuong explores what else is contributing to this promise of prosperity.


After what many consider to be a drawn-out, tumultuous and exhausting election campaign, the Coalition has emerged victorious. Just over a week has passed with Tony Abbott as Australia’s Prime Minister-elect. So, what progress has the Coalition already made on delivering its promise of a stronger economy?

According to the Westpac Melbourne Institute Index of Consumer Sentiment released on the 11th of September [1]:

  • Consumer sentiment rose by a solid 4.7 per cent in the beginning of September, making it 12.7 per cent higher than it was a year ago.
  • Sentiment is at its highest level since December 2010.
  • Sentiment was buoyed by the election outcome.
  • The strong outcome was also driven by low interest rates, rising asset prices and an appreciation in the AUD.

This makes consumer confidence the highest it has been in three years and the marked improvement can be largely attributed to Coalition voters, who display enthusiasm about the prospect of an Abbott government. At 109.3, it is the first time in three years that Coalition voters’ score has broken into positive territory (a level above 100 means that the number of optimists outweighs the number of pessimists). The surge in confidence from Coalition voters was more than enough to make up for the Labor voters’ dip in confidence of 10 per cent. Overall, Labor voters remain more positive about the economic outcome than Coalition supporters, but the gap has closed between the two, making it the smallest since 2009.

Graph

Overall, this jump in Coalition confidence has lifted the overall Index of Consumer Sentiment to 110.6. This was accompanied with an 8.7 per cent increase in people’s perception of economic conditions over the next 12 months. The area of confidence readings is an amorphous one, where there is a strong possibility that these positive figures may become a self-fulfilling prophecy. If enough people convince themselves that ‘things are going to be better’, there’s a good chance things will indeed actually get better – businesses become more willing to invest and consumers more willing to spend. Consumers like certainty. Put simply, the finality of the election outcome eliminates the uncertainty around who will govern the country.

It has been suggested that Tony Abbott has caught a rising tide on the back of his election win. Luckily for Australia, the recent fears about a Chinese hard landing continue to recede. The country’s continuing urbanisation and industrialisation continue to provide a cushion of commodities demand while our own economy transitions from the construction phase of the resources boom. Meanwhile, Chinese tourism this year has been running at a growth rate of about 20 per cent above last year. Chinese industrial production growth to August edged higher to precede expectations, as did retail sales and fixed assets investment.  The key Chinese economic statistics are delivering the promised solid growth as both business and consumer confidence are up.

Two lots of Chinese data and the latest Australian Bureau of Statistics housing finance numbers continue to build the central Reserve Bank forecast that the Australian economyshould steadily pick-up from here. The economic outlook is one of improving growth. Business confidence has received the political shot it was looking for. Next it will seek increased consumer demand to justify investment. On cue, improving house and share prices have a capacity to create a self-reinforcing cycle of investor and consumer confidence – we begin to feel richer.

The event of the change of government adding a dash of investment confidence for business is just the cherry on top of what is a promising economic outlook. As Euripides said, “the lucky person passes for genius”. Tony Abbott has been fortunate in the timing of his election; at least for the first couple of years anyway, before he faces the difficulty of actually delivering what was originally the Labor government’s broad fiscal picture – to shave the federal budget by an average of just 0.375 per cent over the next four years to try to get it back in the black.

Sources:

[1 http://melbourneinstitute.com/miaesr/publications/indicators/csi.html

[2] Westpac Markets Today: daily outlook for Australia, key global economies and markets

[3] http://www.smh.com.au/business/coalition-rhetoric-a-real-confidence-builder-20130911-2tiv0.html

[4] http://www.smh.com.au/business/the-economy/lucky-tony-abbott-catches-a-rising-tide-20130909-2tffe.html

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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