Wednesday, 12 June 2013

Into the "Perfect Storm"
Up. And down. – Creative Commons: Rednuht, Flickr
According to NAB chairman, Michael Chaney, Australia is heading into a "perfect storm" of negative sentiment and economic instability. One contributor to this economic environment is the long federal election campaign, he claims.

There seems to be a hope, borne by both business and federal opposition that the election of a coalition government on September 14 will restore growth and vigour to the economy. Weak consumer spending, it is said, is partly due to the current political uncertainty.  

It may sound absurd to suggest politically-apathetic consumers spend less money because they have to pop down to a church or school hall one Saturday afternoon in a few months' time, but it is true. A JP Morgan study in 2004 looked at six federal elections and found that discretionary consumer spending did actually decrease in the months preceding the polls.

Now, how much of this is due to this year's drawn-out campaign is anyone's bet, but it's important to note that retail sales at the beginning of 2013 was were strongest for the start of any calendar year since 2001. The RBA's interest rate cuts, which the retail industry has long been calling for, mean all the conditions for increasing consumer spending are there. If the theory is correct, consumer spending should increase, once the September 14 is done and dusted. 

But with broader economic uncertainty, the election of a coalition government in September may not be the "second coming" the economy is hoping for. Bricks-and-mortar retail faces real structural problems as online sales continue to grow. Should consumer sentiment and spending not increase after September, we will no doubt begin to hear the rent seeking rants of Gerry Harvey et al. demanding the new coalition government implement a "level playing field" in regards to the GST low value threshold. With an Abbott promise to undertake a tax inquiry, it'll be interesting to see what side of the GST fence a potential coalition government comes down on.

Regardless of the political outcome on September 14, this economic "perfect storm" may well continue to brew. As the mining boom ends (or slows, depending on your semantics) and the oft-mentioned "transition" begins, here's hoping it doesn't take national economic prosperity with it.

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