Australia's Political Turmoil Sends Business Confidence Tumbling

(Bloomberg) -- Australian business confidence slumped to a two-year low in August, a period marked by upheaval in the government that saw Malcolm Turnbull ousted as prime minister.

The sentiment index dropped to 4 points from 7, according to a National Australia Bank Ltd. survey conducted in the week following Aug. 24 -- the day Scott Morrison was elevated to leader of the Liberal Party and the nation. More positively, business conditions, which measures hiring, sales and profits, advanced to 15 points from 13.

“The main thing that political instability does is just stifle investment and so weaken the economy,” Mark Crosby, a professor of economics at Monash University, said in the wake of the leadership turmoil. Historically, business sentiment in Australia has tended to track the fortunes of the government in office as firms are more confident in a stable environment.

Australia's Political Turmoil Sends Business Confidence Tumbling

The Reserve Bank of Australia has kept its benchmark interest rate at a record-low 1.5 percent for the past two years as it seeks to encourage companies to invest and hire. The approach has been gradually paying dividends: unemployment has fallen to 5.3 percent and capital expenditure has been advancing in recent years -- despite dipping in the second quarter -- and is forecast to keep improving.

Policy makers are trying to push the jobless rate down toward 5 percent, a level estimated to make it harder to find qualified employees and so encourage firms to offer higher wages to attract the right people. That, in turn, is expected to fuel inflation and lay the ground for the first rate hike Down Under since 2010.

Australia has changed prime minister six times since 2007, the worst bout of political upheaval in at least four decades.

NAB said the employment index, which held steady at 10, “is consistent with jobs growth of around 23,000 per month. This is consistent with a declining unemployment rate over the latter part of 2018.”

Economists are predicting the economy added 18,000 jobs and unemployment held at 5.3 percent in August ahead of monthly employment data to be released Thursday.

©2018 Bloomberg L.P.