Business as usual for Australian economy under new PM

Martin PARRY
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Australia's new prime minister Scott Morrison is respected by investors and seen as a sensible policy maker, analysts say

Scott Morrison is respected by investors and his elevation to Australian prime minister is a good outcome, analysts say, with the latest bout of political instability unlikely to hurt the economy.

The 50-year-old outgoing treasurer took the top job after a Liberal Party revolt instigated by hardline conservatives, led by Peter Dutton, to unseat moderate Malcolm Turnbull.

Morrison was an ally of Turnbull's and presided over the economy as the government sought to return the budget to surplus and simultaneously cut personal income and small-business taxes.

Analysts see him continuing along the same economic path now that he has climbed into the prime minister's chair.

"He did not bring on the challenge so can't be blamed for the instability," said AMP Capital chief economist Shane Oliver.

"More importantly he is seen as a reasonably sensible policy maker, is respected by investment markets in his role as treasurer and is seen as a centrist giving the Liberals perhaps a better chance of victory in the coming federal election."

Oliver said he expected the government to continue with its existing budgetary strategy with Morrison at the helm, including abandoning a policy to cut the tax rate for large companies.

This, along with the budget coming in better-than-expected, would provide scope for earlier and bigger tax cuts for low- to middle-income earners which could help economic growth, he added.

The Australian dollar rallied on news of the change, as did the stock market, which was rattled by the political uncertainty during the week.

Under Morrison's tutelage, Australia's economy -- which is transitioning from an unprecedented investment boom in mining -- recorded a strong start to 2018 as exports and business inventories rose, although consumer spending and wage growth remain weak.

The 1.0 percent growth in the first three months of 2018 -- the third quarter of Australia's current financial year -- took annual economic growth to 3.1 percent.

- 'Known quantity' -

Morrison was by far the best outcome of the political crisis, said National Australia Bank's chief markets economist Ivan Colhoun, with business and markets breathing a sigh of relief.

"He is more of a known quantity and will be perceived as less likely to make radical shifts in policy than if Peter Dutton had been elected," he said.

"Importantly, the Australian economy continues to perform well, in spite of what is now a decade of intermittent political instability, highlighting the strength of the broad institutional framework that exists in Australia."

Colhoun suggested Josh Frydenberg, who was picked as the new deputy Liberal leader on Friday, could assume Morrison's job at the treasury due to his "good economic and financial credentials".

One uncertainty is whether Morrison will have to introduce policies to please the right of the party, which had pinned its hopes on the more conservative Dutton.

Dutton had called for cutting immigration and removing taxes on soaring energy prices, which analysts warned could slow the economy and blow out the federal budget.

Colhoun added that a key question that could spook markets was whether the government can survive in the short-term.

Turnbull has signalled he will resign from parliament, which would trigger a by-election, threatening the government's slim one-seat parliamentary majority with the prospect of early elections, which must be held by the middle of next year.

ANZ Research said in a note that political volatility had been a constant theme in Australia for the past decade and it expected little economic impact from the change in leader.

"What's more, we think after a decade of political volatility businesses have very low expectations about goings on in Canberra," it added.

"So we don't think it inevitable that this week's events will have a measurable impact on the economy, but we will certainly be watching for evidence to the contrary."