World Economy

New Australian Premier Inherits Faltering Economy

New Australian Premier Inherits Faltering EconomyNew Australian Premier Inherits Faltering Economy

While Australia’s revolving door of prime ministers appears unsettling, having self-made millionaire-turned-politician Malcolm Turnbull at the helm could be a positive development for the country’s troubled economy, say analysts.

Members of the monetary policy board of the Reserve Bank of Australia felt that the country’s economy was still sluggish enough to warrant continued stimulus, minutes from the board’s September meeting revealed on Tuesday, RTT News reported.

Lower resource exports and lagging commodity prices were weighing on the Australian economy, the board said, although the weakening Australian dollar is expected to help spur growth in the coming months.

“The depreciation of the Australian dollar in response to the significant declines in key commodity prices was also expected to support growth, particularly through a larger contribution from net service exports,” the minutes said.

The members added that inflation is likely to remain in the target range for approximately the next two years, so they were in no hurry to hike rates.

At the meeting, the RBA left its benchmark lending rate unchanged at the record low 2% after lowering the rate by 25 basis points each in February and May. The bank said the Australian economy is likely to be operating with a degree of spare capacity with domestic inflationary pressures contained.

The RBA observed that the global economy is expanding at a moderate pace, with some further softening in conditions in China and East Asia of late. “The weakening in Chinese economic activity combined with developments in Chinese financial markets had led to sharp declines in global equity prices,” the minutes said.

Inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate, the bank reiterated.

 Reducing Bureaucracy

Turnbull–who had been serving as the communications minister-was sworn in on Tuesday after defeating Tony Abbott in a dramatic leadership ballot a day earlier, becoming the country’s fifth prime minister in eight years.

Following his victory late Monday, Turnbull pledged a “thoroughly liberal government” promoting freedom of “individuals and markets” and promised to consult and explain policy changes.


Tim Toohey and Andrew Boak, economists at Goldman Sachs, said that while there are a number of uncertainties that will need to be resolved in coming days, they expected the business community to view Turnbull as more business friendly than his predecessor.

“Should the change in leadership result in a tangible lift in consumer and business confidence or a material shift in the nature of fiscal stimulus, there may well be significant implications for monetary policy direction,” said Toohey and Boak in a note on Tuesday.

But filips in confidence due to change in leadership would prove transitory without a sustained improvement in the underlying economy, they cautioned.

Australia’s economy faces stiff headwinds, ranging from a slowdown in China to a downturn in mining investment, suggesting its run as the economically ‘lucky country’ could be ending.

Quarterly economic growth fell to a two-year low at 0.2% during the April-June period, slowing from 0.9% in the previous quarter, fueling predictions Australia may soon experience its first recession in more than two decades.

“In this respect the prime minister-elect is closer to the end in the decline in the terms of trade and hence the erosion of the government’s taxation base, and is inheriting a much lower exchange rate and record low interest rates,” the Goldman economists said.