Australian stocks have failed to fall off a cliff this morning, despite the dire predictions of the conservative elements of the Australian media that suggested a hung parliament would create mayhem on the market.
As Crikey‘s deadline approached, shares were trading up 0.07% with big miners including BHP Billiton outperforming the broader index. Yesterday, business lobbyists including the Australian Industry Group and the Business Council of Australia predicted a savage fall-out for corporate Australia if the political stalemate wasn’t resolved quickly.
In The Australian, under a headline ‘Corporates Fear Policy Mayhem‘, business figures including leading investment banker Trevor Rowe predicted markets would react in a volatile fashion to the failure of any major party to graft a majority. “Financial markets do not like uncertainty,” Rowe told Annabel Hepworth and Damon Kitney.
The paper’s respected national affairs correspondent Jennifer Hewett said that the election result “is unambiguously bad for business and the impact is likely to be obvious as soon as the markets open this morning”. The increased Greens presence in the Senate was likely to impact on the savvy “market based instincts” of a Liberal government, Hewett said.
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The Australian Financial Review quoted market economist Su-Lin Ong who said the “worst possible outcome and the political uncertainly is a negative for bonds, the Australian dollar, and equities”.
Despite a dip at the open, the Australian dollar was up in midday trade and share and bond markets saw no sign of a premature collapse, rising and slightly easing respectively. The benchmark S&P/ASX 200 index rose 0.09% to 4439.4 points, with the All Ordinaries index up 0.1% at 4470.7 points.
Macro-economists contacted by Crikey strongly cautioned against the excess of alarmist rhetoric. The Grattan Institute’s Saul Eslake said he “didn’t think the impact would be significant at all”.
“Provided the tough uncertainty doesn’t last for very long, and the broad framework of economic policies isn’t significantly compromised, then there won’t be much change,” he said, though warned things could get shaky if Bob Katter’s penchant for protectionism and ethanol subsidies began to weigh on the nation’s policymakers.
The University of Queensland’s John Quiggin said the kind of doom and gloom about a looming economic apocalypse had been overstated: “A hung parliament sounds dramatic but we’ve had minority governments at state level and on the whole they’ve functioned just as well as majority governments.
“The one thing that you won’t get is radical unpopular changes if the prime minister bought off Nick Xenophon and pushed through WorkChoices. The idea of a meltdown is pretty silly.”
Quiggin said the one real danger in a policy sense would be if Tony Abbott was elected as prime minister with a solidly hostile Senate.
Meanwhile, dissident economist Steve Keen says both major parties’ feverish adoption of the need to wipe out the deficit was the real risk to economic growth: “Both parties are competing to see who can rip up the economy fast enough … if they both start cutting it then we’re going to see the economy slumping regardless; they’ll be chaos in parliament and we’ll be back at the polls in no time.”
Keen says only the first home buyer subsidy, Reserve Bank interest rate cuts, stimulus spending and demand from China has kept the economy afloat, and with the potential withdrawal or decline of all four, the nation was heading for economic tumult regardless of the make-up of the federal parliament.