New research casts doubt on whether elections cause the Australian economy to slow

Sean Davey/AFP/Getty ImagesAustralia’s Prime Minister Scott Morrison (centre L) and opposition Labour leader Bill Shorten (centre R) meet with members of the public after Morrison delivered a national apology to child sex abuse victims in the House of Representatives in Parliament House in Canberra on October 22, 2018.
  • The Australian economy looks like it slowed quite sharply in the second half of 2018.
  • With Australia’s federal election likely to be held in May, that will create additional uncertainty for households and businesses.
  • ANZ has looked at whether prior elections have had an impact on Australian economic data.
  • Rather than acting to slow economic activity as many believe, ANZ says there’s no strong evidence to support that view.

The Australian economy slowed sharply in the September quarter last year, with evidence mounting to suggest that continued in the final three months of year.

Interest rate markets reflect that concern, seeing a rate cut by the end of this year as a certainty.

The RBA has also acknowledged that growth is unlikely to be as robust as it previously though, seeing the bank trim its GDP growth forecasts and abandon its mild tightening bias on the outlook for the cash rate.

Things are not looking anywhere near as strong as they did throughout much of last year, and now there’s a federal election fast approaching, creating additional uncertainty for both households and businesses.

So should we be concerned about a further pre-election slowdown in the economy, an outcome that could easily see unemployment begin to creep higher keeping inflation and wage pressures entrenched near record-low levels?

That’s something ANZ Bank’s Australian economics team, led by David Plank, has looked at in a note released today, evaluating what impact, if any, elections tend to have on Australian economic data pre and post-elections.

“It is a widely held belief that the Australian economy slows into elections,” ANZ says.

“We tested this by looking at data in the months running up to the 14 elections since 1980, including employment, unemployment, retail sales, consumer confidence and business conditions.”

So is there a noticeable deviation in the data around federal elections?

ANZ says the answer, from a broad perspective, is that elections don’t have all that much influence on the economy.

“Our findings suggest we shouldn’t think too much about how the coming election will impact the data,” it says.

“We think it reasonable to conclude that employment growth slows in the immediate pre-election period. [However], this does not come at the expense of higher unemployment.

“Since 2000, the unemployment rate has had a slight tendency to be unchanged to lower in the three months before an election, but the difference is modest.”

As for other data releases, ANZ says the evidence suggests there’s difference in monthly retail sales growth before elections.

For sentiment indicators, it says consumer confidence has tended to rise while business conditions are mixed, although it acknowledges that the differences are small compared to non-election periods.

Given historic patterns in the data, ANZ has a simple message for those concerned about an election-led economic slowdown.

“There are other things to focus on, such as whether the credit tightening has run its course,” it says.

“We are not saying that the election result itself doesn’t matter, but that is a different question entirely.”

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