It was only six weeks ago that Julia Gillard was chastising economists and commentators over some projections that there was the potential for Australia to experience a recession in the next two years.
It was only a potential – a risk of about 20%, give or take – according to most analysts who called it including Saul Eslake of Bank of America Merrill Lynch, and Goldman Sachs. Nobody sensible was arguing it was likely, and this remains the case.
But the once-faint drum beat of data pointing to structural weakness in the Australian economy has been growing steadily louder.
To be clear, there aren’t signs the economy is contracting, or that it’s even close. But there is undoubtedly some drag and, in contrast to Gillard’s urgings to stay upbeat just weeks ago, Rudd is seizing on it. His economic record – steering the country through the GFC – is the achievement he will point to repeatedly in his campaign for re-election.
The election, he said as he opened the campaign, would be about trust on the economy.
In this first week of campaigning, there’s a stream of economic news which will help keep the topic Rudd has chosen as his battleground front and centre. Any gaffe from either side will be seized upon so Abbott and his shadow treasurer Joe Hockey will need to be at the top of their game.
Rudd pointing to his economic record is a big political gamble that rests on voters’ traditionally instinctive reluctance to switch governments in times of uncertainty.
It’s a gamble for two reasons. First, there are some damaging facts connected to that record, most notably the tragic deaths of four workers on the pink batts scheme.
Second, the messaging is a delicate balancing act and could backfire. Rudd will need to convince voters there’s just enough uncertainty to make people uneasy about switching to a Tony Abbott-led Coalition. But at the same time he’ll need to control the message so the unease doesn’t convert into anger at Labor’s overall stewardship of the economy through the passage of the mining investment boom.
It’s not quite “Be afraid, be very afraid”. It’s more “Be concerned, be mildly concerned.”
There’s a brutal contrast in rhetoric between the anxiety about confidence from Gillard and Wayne Swan, and the language of Rudd and treasurer Chris Bowen. Gillard and Swan urged sustained optimism, but immediately on returning to office, Rudd declared the China resources boom over and all the talk is now about “careful management of the transition”, the evidence of which has been mounting for months.
The value of the dollar and iron ore prices, unusually high over the past 18 months, have been falling faster than anticipated.
There’s been increasing talk about inflationary pressures becoming harder to detect across the economy. Demand remains subdued.
Employment and housing sector data have been scratchy, most notably last week’s report of a decrease in housing approvals, when the market was expecting a small rise.
In a speech in Sydney last week, RBA governor Glenn Stevens, amid a generally reassuring talk about counterbalances in the economy performing as expected, pointed out the end of the resources investment boom “could be quite a big fall in due course”.
Then last week, in the mini-budget from Bowen, came the pour: government revenues since have had to be revised down more than $33 billion over the forward estimates because growth estimates have had to be revised down drastically.
The week ahead has some more drips in store.
The view of money markets and most economists is that that this week’s Reserve Bank board will cut rates again, to a record low of 2.5%. A cut will underline the weakness in the economy, and the need for consumers and businesses to help rev it up by borrowing and spending.
There are also some key economic data points this week: the ABS releases retail trade data on Monday, followed by housing price data on Tuesday, housing finance on Wednesday, before Thursday’s unemployment figures which are expected to show a small rise.
To cap it off, it’s the start of reporting season with results due from Rio Tinto and Telstra, among others.
All of it points to an opening week dominated by the economy, and continuing signs of that choppiness. Barring a huge shock in any of the data points, Rudd will be able to continue to hammer his point about managing the transition.
But there are five weeks to the campaign. And campaigns, like data releases, are guaranteed to have their surprises too.
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