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The pre-Election economics Turnbull must manage

If, as appears likely, the Federal election will be on Saturday 2 July, there will be a few potential economic hand grenades tossed into the campaign from the Australian Bureau of Statistics, private sector surveys and from the monthly meetings of the Reserve Bank of Australia.

Between now and a 2 July election day, there will be three more RBA meetings, three more labour force releases yet only one more update on GDP growth, inflation and business investment. According to the ABS calendar, the last ‘top tier’ economic release before election day with be the labour force release on 16 June. In the 16 days that follow, there is precious little in the way of fresh news to guide the markets, let alone have an influence on campaigning.

One potentially vital release will be when the Secretaries of Treasury and the Department of Finance publish the Pre Election Fiscal Outlook 10 days after the writs for the election have been issued. With the 2 July election having to be called by 11 May, this means that the updated PEFO numbers on the budget will be released on 21 May. That is seven weeks before the election and just 18 days after the 3 May budget. Not much is likely to have changed between the budget and Pefo.

The economic news that does get released between now and election day will no doubt be viewed through the prism of economic management credentials. The Coalition will be hoping that the recent softening in employment creation is quickly reversed with each monthly labour force release, even though the promise in the last election campaign to generate one million jobs in five years is now a remote possibility.

Expect every statistical wrinkle and trend in the normally volatile employment numbers to be magnified by both sides of politics to suit their argument as the election campaign hots up.

The GDP result on 1 June will also be an important scene setter for the economic debate. The government was pleasantly surprised when the last national accounts showed annual GDP growth at a solid 3 per cent. This was a good result for the economy after several years where annual GDP growth has been stuck at a sub-optimal 2.5 per cent or so. If the GDP result during the election campaign confirms growth at or even above 3 per cent, the government will no doubt use the news as a sign of its economic competence.

For the RBA and interest rates, the government is lucky that there is little pressure for a change in either direction. The RBA has shown in the past that it does not stop working during elections. It adjusted interest rates in the 2007 and 2013 election campaigns and Governor Stevens would do the same this time if circumstances demanded such a move.

Over the next three months, with the economy doing well, but with inflation very low, the RBA is very likely to hold rates steady.
One final wild card in the election campaign could be any comment from the credit ratings agencies. Australia enjoys a triple-A rating from the three major agencies and usually they assess those ratings after each budget.

The threat of a ‘negative watch’ or downgrade is very low. Certainly the government would be hoping for no such action which, were it to occur, would be a major economic shock in the middle of the election campaign.