Prime Minister Julia Gillard will be fighting the September 14, 2013 election on the economy and economic management. This means economic and policy issues that pop up between now and then could be either time bombs or manna from heaven for the government, depending on which way they go.
No doubt the level of interest rates will feature in the election campaign. On that score, with mortgage and small business interest rates currently well below historical averages and mortgage and business debt at high levels, the current advantage is with the government. Between now and the election, there are eight more meetings of the Reserve Bank board, which means there are eight opportunities for the bank to cut or hike interest rates as it assesses inflation and growth risks. From the government’s perspective, it would probably be delighted with steady interest rates between now and election day to lock in a huge cost of living issue in its favour.
Jobs and the unemployment rate will also feature heavily, with the government sitting on a record of 836,000 new jobs created since November 2007 and an unemployment rate that is currently low at 5.4 per cent. The Australian Bureau of Statistics will be releasing the monthly labour force data on the second Thursday of each month. This means there are eight more labour force releases before the election, including one on Thursday September 12, just two days before polling day.
The government will be hoping, no doubt, that average monthly job creation over that time can be a touch over 20,000, meaning that is will have created 1 million new jobs since coming to office. That would be a nice sound bite in the final couple of days of campaigning. This, however, seems a bit of a tough ask given the current growth outlook, but 10,000 to 15,000 a month is certainly on the cards. For the unemployment rate, the government would be delighted with a number below 5.5 per cent as a sign of economic wellbeing. The monthly volatility of the series will no doubt throw up some headlines ranging from "jobs bonanza boosts Gillard” to "jobless jump hurts Labor”. It will be a rocky ride on the monthly jobs data.
There will be three more GDP releases between now and the election. The December quarter 2012 GDP result will be released on March 6, the March quarter 2013 data are released on June 5 and the June quarter 2013 data on September 4. There seems little doubt that the December quarter data will be soft, with annual GDP growth almost certain to tick below 3 per cent. That will probably be of little consequence, other than to reiterate what all sensible people know – and that is the economy slowed to a below trend pace during the course of 2012.
More interesting will be the March and June quarter data for 2013, especially the GDP result to be published just 10 days before the election. The government will be delighted if the annual GDP growth rates can stay above 2.75 per cent but will be doubly please with annual figures at 3 point something per cent. This implies either the March or June quarter registering quarterly GDP growth near 1 per cent, given the softer 0.5 per cent result released for the September quarter 2012. GDP growth near 2.5 per cent will add fuel to the Abbott platitude of a "stronger economy” even if the result reflects a moderation in the business cycle in a structurally robust economy. Such is the nature of politics at the moment, but you can be sure the Coalition will be hoping for weak data in the months ahead.
Linked to the interest rate question will be inflation. There are just two more CPI releases prior to the election – the March quarter CPI print is released on April 24, while the June quarter CPI is released on July 24. If, as seems likely, the annual inflation rate remains near 2.5 per cent or less, it should help lock in steady interest rates.
Low inflation also has a plus for the government in that it will confirm yet another period of rising real wages and greater purchasing power for those earning any more than the inflation rate. Each of these two CPI releases will be viewed mainly from the prism of what it means for interest rates, which is fair enough. But from another political angle, it will also feed into the cost of living issue, which will no doubt be a top-tier issue for the Coalition, despite the facts suggesting Australians have never been richer.
Of course there will be the usual run of monthly retail sales, the daily house price series, building approvals, consumer sentiment, business conditions and a bunch of other news dotted over the next seven months. Each will be viewed from a political perspective and each 'bad' result will be a 'body blow' for the government, each 'good' result an 'encouraging sign'.
The most importance will no doubt be with the data very close to polling day – the June quarter GDP result and the August labour force data the stand outs, together with the Reserve Bank's board meeting on September 3. If these two releases show GDP growth holding at 3 per cent, 950,000 jobs created by this government and an unemployment rate at or below 5.5 per cent, the government would be well pleased. Anything weaker, and the Coalition will go in hard.
It will be a fantastically fascinating seven months ahead.
Stephen Koukoulas was senior economic policy advisor to Prime Minister Julia Gillard between September 2010 and July 2011.