Prospect of hung parliament or very slim majority is Australia’s Brexit moment for delivering uncertainty

By @vitthernandez on
Australian 2016 Election
Australian Prime Minister Malcolm Turnbull casts his vote for the general election at the Double Bay Public School in Sydney, Australia, July 2, 2016. Reuters/David Gray

With Brexit, Macquarie forecasts some of the 100,000 Australian expats in Britain would opt to return home which would be a boost to the property market. Or are they just moving from the negative impact of the Brexit to Australia’s own Brexit moment?

In an opinion piece, The Sydney Morning Herald business columnist Elizabeth Knight writes that the likely result of the Saturday Australian election of a hung parliament or very thin majority is Australia’s Brexit moment. She points out that the poor electoral performance of the coalition government, even if it could claw its way back to office, contributed to political and economic uncertainty.

While politics would remain under whichever fragile governance emerges after Tuesday when all the votes have been counted, instability would reign over the Australian economy, says the columnist. It comes at a time that commodity prices are down and the mining industry has ceased being the engine to growth of Australia which enjoyed uninterrupted growth for the last 25 years.

Knight notes that ratings agencies quickly downgraded Britain’ credit rating within one week after Britons opted to leave the European Union. She adds Moody’s and Standard & Poor’s are expected to lower Australia’s Triple A credit rating or place it on negative credit watch.

Even the markets, which opened 12 percent lower at the start of trading on Monday, are expected to react negatively at the Saturday election results because of its distaste for uncertainty. Until the election outcome becomes clearer, Knight says many investors would wait on the sidelines.

Niv Dagan, executive director of Peak Asset Management, agrees that markets do not like uncertainty which would impact sentiment in the short term. “The big factor is business and consumer confidence and in this environment, that will remain fragile. The uncertainty will rattle the markets,” Dagan adds, reports Bloomberg.

Three more years of de facto minority government is not a great outcome for the Australian economy and investment markets, says Shane Oliver, AMP Capital Investors head of investment strategy.

VIDEO: Australia in political limbo after cliff-hanger election