Rudd win ‘may lift confidence’, economists and investors say

Published: 30 June 2013

SYDNEY - Kevin Rudd's victory as leader of Australia's governing Labor Party may boost consumer and company confidence before an election that could be held as early as August, according to investors, economists and business leaders.

Mr Rudd prevailed over Julia Gillard in a 57-45 vote among Labor legislators on Wednesday that underscored the party's split between the man who swept Labor to power in 2007 and the woman who ousted him in 2010.

Business groups and economists called on Mr Rudd to bring forward a scheduled September 14 election.

The former diplomat, who says he has learned from his first tenure as prime minister, on Wednesday pledged to work closely with business as he faces an election with a weakening economic outlook that has prompted the central bank to cut interest rates to a record low.

Mr Rudd, sworn in as prime minister in Canberra on Thursday, resisted opposition calls to set an election date.

"We'd call for an election as soon as possible because business confidence is low and to fix that we need to get this election done," Business Council of Australia president Tony Shepherd said in a telephone interview.

He was backed by Australia & New Zealand Banking Group economist Ivan Colhoun, who wrote in a report: "The main issue for markets is what the events of today mean for the timing of the election. An earlier election may lift business and consumer confidence, which appears to have been weighed down by political uncertainty."

Gross domestic product grew 2.5% in the first quarter from a year earlier, the weakest reading since the second quarter of 2011, a Bureau of Statistics report showed on June 5.

The median estimate among 35 economists is for 2013 growth of 2.5%, compared with a 2.7% forecast in January, a Bloomberg poll shows.

"Looking at our global economic circumstances, we have tough decisions ahead on the future of our economy," Mr Rudd said on Wednesday.

"There's a big future for Australian manufacturing under this government. Business is a group that this government will work with very closely."

Mr Rudd may bring forward plans to link the nation's carbon market with Europe's, Climate Mundial MD Daniel Rossetto said from London.

Tony Abbott, leader of the opposition Liberal-National coalition, may also abolish a fixed-price period for the carbon market if he wins office at the election, Mr Rossetto said.

Australian Industry Group CEO Innes Wilcox said: "Rudd's success in the caucus ballot puts to rest the leadership distraction that has added to the political uncertainty weighing on our community and economy.

"Business will be deeply interested in his policy approaches ahead of the election."

Australian Industry Group is a business association representing more than 60,000 businesses.

Data on interest-rate swaps compiled by Bloomberg show traders see a 28% chance that the central bank will lower its benchmark interest rate to 2.5% at the next meeting on July 2.

"It's a bit of a circuit breaker around confidence," Wilson HTM Investment Group adviser Peter Esho said in Sydney. "It will be positive in terms of confidence."

Shortly after becoming prime minister, Ms Gillard negotiated a 30% levy on resource profits with BHP Billiton, Rio Tinto and Xstrata. The tax will reap A$1.8bn less in revenue for the year to June 30 than previously forecast, budget documents showed on May 14. Mr Abbott has vowed to repeal the mining tax and carbon levy.

"If Australia is to continue to enjoy the benefits of the mining boom, we must acknowledge our drifting international competitiveness and set about remedying the problem," Minerals Council of Australia CEO Mitch Hooke wrote in an e-mail. Mr Rudd should focus on spurring economic growth, he said.

The Australian dollar has dropped 11% against its US counterpart this quarter, the biggest decline since it plunged to a five-year low of 60.09 US cents after Lehman Brothers' collapse in 2008, according to data compiled by Bloomberg.

The change in leadership "is a second-tier driver for the currency", Citigroup's Singapore-based currency strategist, Todd Elmer, told Bloomberg TV.

"The biggest story for the Aussie dollar remains the regional slowdown. Until expectations on China stabilise, we are going to continue to see pressure on the Aussie dollar."

Goldman Sachs, Barclays and HSBC are among banks forecasting China's economy will expand 7.4% this year, below the government's 7.5% goal. China is Australia's largest trading partner.

The lower house of parliament sat yesterday for the final time before the election.

- Bloomberg