Bloomberg News

Australia’s Rudd May Lift Business Confidence, Investors Say

June 27, 2013

Australian Prime Minister Kevin Rudd

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. Photographer: SeongJoon Cho/Bloomberg

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.

Rudd, 55, prevailed yesterday over Julia Gillard, 51, in a 57-45 vote among Labor lawmakers 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 Rudd to bring forward a scheduled Sept. 14 election.

The former diplomat, who says he has learned from his first tenure as prime minister, yesterday pledged to work closely with business as he faces an election with a weakening economic outlook that’s prompted the central bank to cut interest rates to a record low. Rudd, who was sworn in as prime minister in Canberra today, resisted calls from the opposition party 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 Ltd. (ANZ) Australian 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.”

Currency, Stocks

The Australian dollar rose 0.4 percent to 93.14 U.S. cents as of 4:41 p.m. in Sydney. Benchmark 10-year government bonds rose, sending the yield down three basis points to 3.81 percent, according to Bloomberg Bond Trader prices. The S&P/ASX 200 Index (AS51), the country’s benchmark equities gauge, rose for a second day, to close 1.7 percent higher at 4,811.30.

Gross domestic product expanded 2.5 percent in the first quarter from a year earlier, the weakest reading since the second quarter of 2011, a Bureau of Statistics report showed June 5. The median estimate among 35 economists is for 2013 growth of 2.5 percent, down from a 2.7 percent forecast in January, a Bloomberg poll shows.

“Looking at our global economic circumstances, we have tough decisions ahead on the future of our economy,” Rudd told reporters in Canberra yesterday. “There’s a big future for Australian manufacturing under this government. Business is a group that this government will work with very closely.”

Carbon Tax

Rudd may bring forward plans to link the nation’s carbon market with Europe’s, Daniel Rossetto, managing director of Climate Mundial, said by e-mail from London.

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

“Rudd’s success in the caucus ballot puts to rest the leadership distraction which has added to the political uncertainty weighing on our community and economy,” Innes Wilcox, chief executive officer at Australian Industry Group, which represents more than 60,000 businesses, said in an e-mail. “Business will be deeply interested in his policy approaches ahead of the election.”

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

“It’s a bit of a circuit breaker around confidence,” Peter Esho, investment adviser in Sydney at Wilson HTM Investment Group, which oversees about $11.8 billion, said in a telephone interview. “It will be positive in terms of confidence.”

Mining Tax

Shortly after becoming prime minister, Gillard negotiated a 30 percent levy on resource profits with BHP Billiton Ltd. (BHP), Rio Tinto Group and Xstrata Plc. The tax will reap A$1.8 billion less in revenue for the year to June 30 than previously forecast, budget documents showed May 14. 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,” Mitch Hooke, Minerals Council of Australia chief executive officer, wrote in an e-mail. Rudd should focus on spurring economic growth, he added.

The Australian dollar had dropped 11 percent against its U.S. counterpart this quarter, the biggest decline since it plunged to a five-year low of 60.09 U.S. cents after Lehman Brothers Holdings Inc.’s collapse in 2008, according to data compiled by Bloomberg.

China Demand

The change in leadership “is a second-tier driver for the currency,” Todd Elmer, Singapore-based currency strategist at Citigroup Inc., told Bloomberg TV. “The biggest story for the Aussie dollar remains the regional slowdown. Until expectations on China stabilize, we are going to continue to see pressure on the Aussie dollar.”

Goldman Sachs Group Inc., Barclays Plc and HSBC Holdings Plc are among banks forecasting China’s economy will expand 7.4 percent in 2013, below the government’s 7.5 percent goal. China is Australia’s largest trading partner.

The lower house of parliament sits today for the final time before the election.

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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