Close election result will drag on Australian economy

While global markets limp on, a slim majority government is likely to constrain Australian growth, according to a new global outlook report.

With the Australian election returning the current government with a razor-thin margin, the political climate could drag on the country’s growth, AllianceBernstein (AB) says.

In its latest outlook report, the firm said the slim majority will mean that the government will struggle to pass meaningful structural reform, consolidate the budget and conduct fiscal repair.

“It also diminishes the possibility of aggressive fiscal stimulus, should that be required,” the report’s authors, senior Asia-Pacific economist Guy Bruten and Asian sovereign strategist Anthony Chan, said.

“With inflation below the Reserve Bank of Australia’s target band, the central bank is likely to deliver further policy easing. And with the rating agencies looking closely at downgrading Australia’s AAA rating, the Australian dollar is likely to come under more pressure,” the report said.

The study also detailed the greater outlook globally, with growth internationally looking subdued.

Japan moving forward with its central bank-funded fiscal stimulus and Brexit were both cited as being partly responsible for this, while the upcoming US presidential election is likely to further contribute to general market uncertainty.

“We continue to see modest global growth and low inflation, with the support of still-accommodative monetary policies,” the report said.

According to the study, the US economy’s improvement looks set to slowly continue, despite experiencing a few setbacks.

“The US economy continues to expand, although the Federal Reserve has pushed back additional rate hikes over concerns about the pace of global growth and has signalled even further caution following Brexit.”

“It’s worth noting, however, that since the recovery started in the summer of 2009, the US economy has generated 13.4 million new jobs. That’s twice as many as the 6.2 million jobs created during the 2002–2007 economic expansion.”

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