Australian economy damaged by political uncertainty, David Koch says
POLITICIANS should get on with their job because the more leadership uncertainty there is, the more your money suffers, writes David Koch.
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FORMER Reserve Bank Governor, Glenn Stevens, always said it was his job to get the economy and interest rates out of the headlines so Australians could focus on getting on with their lives.
We wish politicians would have the same strategy because these brickheads in Canberra just simply don’t seem to understand their internal bickering, revenge campaigns and self interest causes a serious ripple effect through the economy and business.
Instability and uncertainty is not only a recipe for disaster in politics but also when it comes to financial markets and the economy.
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The rationale behind Glenn Stevens’ strategy was that his job was to manage the economy and interest rates so that there were never any surprises. That economic growth was consistently solid, or strong, which created an environment for Australians to be confident and not worried about their future.
That way consumers and bosses could just get on with their life, growing their businesses, employing more people and spending money.
Our politicians don’t seem to have the intellectual depth to understand this philosophy.
So let’s look at the key ramifications for you and economy:
1. It creates ongoing uncertainty
We understand the leadership challenge of the Liberal Party was relatively quick and decisive, we have a new Prime Minister and we’re being told everything is back to normal. That would be great … but it’s not back to normal.
Malcolm Turnbull has resigned from Parliament and there will be a by-election for his seat of Wentworth. With a single seat majority, the Coalition’s hold on power hangs by a thread which could be cut if they lose Wentworth.
So for the next four to six weeks the media and the nation will be focused on that by-election to see if the Government survives. If it loses then the odds are that a general election will be called before Christmas.
That’s another four to six weeks where the country almost stops while our political future is determined. Business puts any major investment decisions on hold and consumers are wary as the election whirlwind whips up into a frenzy.
So, yes, the leadership coup was done quickly but the uncertainty will stay until into next year.
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2. Consumer confidence gets undermined
In the week leading up to the recent leadership spill consumer confidence figures (which had been strong for the previous 10 weeks) plunged. Consumers went into their shell; the uncertainty was unsettling which meant they closed their purses and wallets.
It’s all about normal human psychology. When you’re unsettled or concerned, you withdraw and go into the bunker … it’s a natural protection instinct.
When the leadership was decided, and Scott Morrison appointed, the consumer confidence figures bounced back quickly. We’re a resilient lot. We just need a bit of certainty and, frankly, we’re getting used to this political stupidity.
But now that there will be a by-election and, depending on the result, an early general election before the end of the year and that lack of certainty returns for a longer period of time.
Remember this next six months is a big spending period for most Australians. It’s the time when we plan summer holidays, Christmas parties and presents, entertain with friends. It’s Spring and Summer is fast approaching.
But during this big spending period we’ll be constantly harangued in the traditional and social media by politicians and commentators bickering with each other on the state of the economy, our jobs and the future.
One side of politics will paint a dire picture of the future with the promise, if elected, to fix it while the other side will tell us how everything’s fine and it’s because of them.
In other words, we’ll all be totally bamboozled deciding fact from fiction.
Would you spend up big?
3. Business confidence weakens
Most bosses hate taking risks. They have a lot on the line … the futures of their employees and the company as a whole.
In the world of business, bosses want as much certainty as possible when it comes to the future of the economy and who’s running the country.
If there’s uncertainty they think twice about hiring extra staff, they delay making any big investments (machinery, technology, equipment etc) and they’re less likely to agree to any bonuses or big pay rises for staff.
Bosses are more naturally inclined to sit on the sidelines and do nothing new if they’re not sure about the future … particularly a change in Government.
If bosses are nervous it ripples down to their staff and also to their suppliers who in turn will be nervous because new orders will dry up.
4. Particular investment sectors are affected more than others
The investment consequences of a period of political uncertainty can be patchy. Obviously if consumers rein in spending then retailers, hospitality, travel … business that depends on cash from consumers … could be in the firing line.
Likewise, companies which depend on business investment … from technology to commercial office space … could be in for a squeeze. While those companies with big export markets will be cushioned because they’re selling outside Australia.
This is what the politicians fail to understand when they play their “games” in Canberra which put their self interest ahead of the national interest. The ramifications are real, they’re financial and they hurt ordinary people.
Having said all that, thankfully, the economy is in pretty good shape to cope with an uncertain political environment for the rest of the year. But there will be unnecessary casualties. Which is a shame because it needn’t have happened.