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 MARKET REPORTS |
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Economics
Party economics: Australian-style
December 3, 2007
Clifford Bennett, Chief Economist, Sonray Capital Markets
The past performance of the domestic economy, while respective
political parties have been in power, has been a hot topic in the current
federal election campaign. Does the political party in power matter, or is
the international economic environment more important?
From a Market Economics perspective it is crucial when investing in local
Australian markets to have a feel for how a change of government may
impact the performance of the Australian economy henceforth. Clearly the
international environment has been supportive of the domestic economy, but
it must also be said that government policies have been helpful in allowing
Australians to take advantage of that global village boom, as has the good
fortune to be sitting atop a pile of semi-valuable rocks.
The issue is
extremely complex as lead times on policy implementation, and even policy
shifts of a decade and more ago, have had their bearing on the rate of
growth of the Australian economy, right up to this point. So we cannot
possibly fully answer the question. What we can do is get a gauge on just
how much the economy may vary in whatever direction from its current
trajectory, should there be a change of government, based on experience.
In approaching the problem there were only two ways to go. 1. A comparison
of Australia to the global economy during different party political terms. 2. A
comparison of Australia to the US economy, on the basis that it has in the
past been the lead economy, and it is the economy which most accurately
resembles Australian culture, psychology and behaviour.
(Please note I am purposefully writing down my approach as I proceed
without yet having done any quantitative comparison of any sort.)
Given the global economy has passed through a series of revolutions, one
after the other, of all kinds over the last few decades, political,
technological and culturally, by far the superior comparison is likely to be
with that of the USA.
What we will now do is compare average GDP for Australia and the US since
the beginning of the Whitlam Labor government in 1973, and on into the
Howard government to date. Inflation and interest rates are not included,
being as they are, largely determined by the Reserve Bank of Australia.
Please note this is a simplistic comparison, but may act to provoke others to
greater detail, and will at the least be helpful to us in discerning whether
our domestic investment decisions should be moderated in any regard, as a
result of a change of government this weekend, should it occur.
Core Results
1. The comparison completed, the core result is remarkable, which is
that both parties over this period from 1973 to 2006, have presided
over an average annual Australian GDP growth rate of 3.2%.
2. When we look to the USA for a relative performance comparison,
the ALP has matched the USA almost exactly as an average over the
33 years we are looking at, while the Liberal party has out-
performed the USA by an average annual rate of 0.3%.
3. In terms of individual Prime Ministers performance in GDP terms
alone, it appears Paul Keating has the lead, but that may be
matched once the full year 2007 results are in for John Howard.
For the period we have looked at, Paul Keating is ahead in both
average annual Australian GDP, and relative to the USA GDP.
Conclusion
1. The difference between the parties historically on a GDP basis is
negligible to zero.
2. Therefore any possible sell off of the Australian equity market or
the Australian dollar, on Monday and Tuesday next week, that is
as a result of a change of government, should it occur, would
represent an excellent buying opportunity long term, as such a
sell off would not be based on historical evidence.
3. The outlook for the Australian economy appears more closely
correlated to the global economic environment than the individual
policies of either political party. While the US has been used due
to its dominant role in the global economy for the period studied,
it is important to note that this US dominance may now be
diminished, and our primary correlation going forward is likely to
be to the global rather than US economy. This study is
nonetheless valid in showing the power of external economic
forces over domestic political party policies.
Please see the full comparison tables below.
Key Forecasts:
- Fed will cut three times by 25 points in 2008.
- US economy will flirt with negative growth Q4, Q1, Q2.
- US equity markets remain at risk near term.
- China to remain a powerhouse.
- Global economy to remain firm.
- Commodities volatile but bullish.
- Gold target at US$495, US$800 achieved, US$1100 next.
- US dollar to continue accelerated collapse next 6 months.
- Carry trade is old news and over, USD/YEN to decline to 103, 97.
- RBA to raise rates to 7.0% within two meetings.
- Australian dollar will continue to climb, 93 cent target achieved,
next parity $1.00, but in 2008, then 1.08 1.12 in following year.
- Global equity markets may suffer minor drag from US market
weakness occasionally, but remain strong.
- Australian equities increasingly aligned to global growth.
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Stocks: Buying opportunities for transport stocks: BXB & RCY
Trading: The ultimate guide to trading shares for beginners - part 3
Stock of the week: Dip creates buy opportunity on hot construction company
Economics: Party economics: Australian-style
Outlook: Is an Australian recession on the cards?
Smart Investing: Choose your super fund wisely and retire wealthy
Markets: A volatile month for US stocks
Companies: Market believes Rio worth more, says CEO
Disclaimer: This recommendation has been issued on the basis that it is only for the information and exclusive use of the particular person to whom it is provided by Sonray Capital Markets Pty Ltd ABN 18 104 482 993, AFSL 231151. These recommendations are current as at the date of issue. Past performance is no guarantee or reliable indication of future results. Trading in derivatives may involve a high degree of risk and significant loss, and is appropriate only for persons who can assume risk of loss in excess of funds deposited. This recommendation is of the nature of general information only and must not in any way be construed or relied upon as legal, financial or professional advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of any investment for your circumstances. Although the information in this recommendation has been obtained from sources considered and believed to be both reliable and accurate no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred herein.
Please note that CompareShares.com.au simply publishes analyst reports on this page. The publication of these reports does not in any way constitute a recommendation on the part of CompareShares.com.au. You should seek professional advice before making any investment decisions. |
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