Prime Minister Tony Abbott announced the federal government’s intent to put economic strategy front and centre in its work next year with the unveiling of his new-look Cabinet, including a refreshed economic team.
Scott Morrison, who as immigration minister managed to stop the flow of asylum-seeker boats coming to Australia, has been handed the social services portfolio with carriage of a range of economic reforms including welfare policy, childcare, and paid parental leave.
Treasurer Joe Hockey has telegraphed the government’s intention to lead a conversation about the new realities of Australia’s economy and the structural challenges facing the budget. He’ll have a new assistant treasurer in Josh Frydenberg, and a new parliamentary secretary in Kelly O’Dwyer.
The economic backdrop to the political debate will be critical. In a note to clients, ANZ’s excellent research team has summarised the 10 key themes they see for the coming year in the Australian economy. With permission, here’s the full list. It’s quite the minefield:
1. Worldwide wages watch: Slower wages growth would imply a greater degree of fragility for the global economy and will see central banks retain a stronger bias towards lower rates.
2. China deleveraging – it’s all about the speed: Deleveraging pressures to date remain localised within the markets or regions in which they have occurred. We expect this to persist, but there are clearly risks.
3. AUD – more than a shock absorber? While domestic factors will remain central to the currency’s fate, the market’s reaction to the divergent paths of the three major central banks will be key.
4. ‘Animal spirits’ – a key swing factor: Against a backdrop of weak national income growth, can Australian business and consumer confidence lift significantly without a supporting exogenous factor?
5. Labour market partials: Look to developments in job advertising as a critical indicator of labour demand and a cross-check on the official unemployment data.
6. Housing market policy: The official response has been very measured so far. Hard policy targets, if implemented, could drive a more substantive slowdown in investor housing finance and house prices.
7. Flatter and lower curves: There is potential for a significant fall in Australian term rates. Australian 10-year government yields could fall as low as 2% over the course of the year.
8. Iron ore – absorbing higher than normal supply: A key factor will be the supply discipline from high-cost Chinese capacity.
9. Oil – waiting for supply cuts from US shale: Investors are still adjusting to the structural change in the market, and the risk is for further liquidation in the first half of 2015 amid swollen inventories.
10. Structural reform – a year of opportunity: Bold decisions are needed to lift Australia’s long-term growth potential.
In many of these areas, the government can do precisely squat. But in others they can certainly move the dial = housing, structural reform, and boosting confidence through competent economic management – showing they have a realistic, deliverable plan for fixing the problems in the federal budget.
The research team notes that 2015 will, politically, be “a year of big decisions and opportunity to progress the structural reforms needed to lift long-term growth potential.” They say political progress “could be a key swing factor in driving confidence and business decisions”, which could help release the “animal spirits” that have been notably absent this year. The federal budget, you’ll recall, smashed consumer confidence and it never really recovered. In recent months, business confidence has been starting to flag too, with the fractious political environment not helping the situation.
There are some potential positives that the government will have to work with. The fall in the Australian dollar has really accelerated and the impact of this should start to show in export competitiveness and in activity in the tourism and education sectors. While the unemployment rate has now ticked up to 6.3%, jobs are still being created and there’s a positive trend in job advertising data in the crucial non-mining sectors of the economy where activity needs to pick up to maintain momentum as the resource sector’s contribution to growth continues to away.
Joe Hockey says the country is ready for a holiday. The ministers will certainly need it.