CHART: Uncertainty over Australia's economic policy is now even higher

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The non-result from Australia’s election is causing a high degree of uncertainty on economic policy.

So murky is the question of Australia’s future that the US-based Economic Policy Uncertainty index has created a new measure just for Australia.

Here is a version of the index created by Bank of America Merrill Lynch:

According to the chart, which runs from 1998, uncertainty usually peaks before an election and falls afterward.

In this election, the uncertainty just keeps getting bigger.

Uncertainty was already at its highest, compared to previous national polls, heading into the election.

“From a broader markets perspective, the lack of a clear result and likely negative impact on sentiment is unwelcome coming on the heels of the shock of the UK vote (to leave the European Union),” says Bank of America Merrill Lynch in an analysis of the election.

The bank says the negative sentiment from the uncertainty adds to the case for interest rate cuts from the Reserve Bank.

And it also increases the risk of an adverse action on Australia’s AAA credit rating.

“We believe there has to be greater concern over the ability to maintain fiscal discipline and may make it more likely that the AAA sovereign rating comes under even greater scrutiny,” according to analysts Tony Morriss, Alexandra Veroude and Adarsh Sinha.

“We would not rule out at least one rating agency putting Australia on negative outlook at some stage if only as a signal that discipline will be required to maintain a credible trajectory back to surplus over the medium-term.

“The result would make it even more difficult to entertain the idea there will be broader tax reform to address Australia’s challenges of raising revenues considering the uncertainties over growth.”

The Economic Policy Uncertainty Index for Australia was created by analysing sentiment within coverage of eight Australian newspapers: Daily Telegraph, Courier Mail, The Australian, The Age, The Advertiser, Mercury, Sydney Morning Herald,The Herald Sun.

Here’s a version of the chart showing key news events and the impact on uncertainty back to 1998:

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