Australia’s 3Q challenges compounded by election result

15 August 2016
| By Oksana Patron |
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Post-election political uncertainty and potential policy paralysis are expected to be a drag on Australia's growth outlook in the third quarter, according to AllianceBernstein (AB).

The Global Capital Markets Outlook said that further uncertainty after the close election result could also lead to increased credit rating scrutiny, with some rating agencies looking closely at downgrading Australia's AAA rating, and would put more pressure on the Australian dollar.

According to the report's authors, senior economist, Guy Bruten, and Asian sovereign strategist, Anthony Chan, such an outcome would also diminish the possibility of aggressive fiscal stimulus.

"This policy uncertainty is likely to weigh to some extent on the growth outlook. With inflation below the Reserve Bank of Australia's target band, the central bank is likely to deliver further policy easing," they said.

As far as the global outlook was concerned, AB's view was that Brexit would primarily affect only the near-term outlook of the UK economy, as non-Japan Asia typically had small exposure to UK export linkages.

However, there were other factors, such as the use of the central bank-funded fiscal stimulus by certain countries and the outcome of the US presidential election in November, which would have a larger impact on the global outlook.

The report also noted that despite the slower growth projections around the globe, the US economy kept on growing, although with some hiccups.

"The US economy continues to expand, although the Federal Reserve has pushed back additional rate hikes over concerns about the pace of global growth — and has signalled even further caution following Brexit," the authors added.

As far as outlook for China was concerned, AB stressed that key activity data for May, released by China, "essentially confirmed that further economic weakness was on the horizon".

"That was most noticeable with the renewed slackening of housing activity," the report said.

"In addition, the rate of growth in total fixed asset investment has slowed sharply, with an even greater decline in private sector investment, while the classic Chinese fiscal policy stand-by of public sector infrastructure investments remains a sole high flyer in growth-rate terms in the economy," AB said.

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