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Australia's post-Abbott economy flourishing

 

The dumping of Tony Abbott and Joe Hockey looks like it is paying dividends for the economy or least the level of optimism from both consumers and the business sector.

The weekly ANZ measure of consumer confidence reached a four month high this week and it is now a healthy 2.6 per cent above the long run average. That is good news.

A little over a month ago, when Abbott and Hockey were in charge and trash-talking the economy and budget, consumer confidence was between five and 10 per cent lower.

Such is the power of the leadership change for consumer optimism that household spending growth is poised to pick up in the months ahead as consumers are more inclined to spend when they are optimistic.

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Full story: Why Australia is not recession-bound

The NAB survey of business also showed a post-Abbott lift. In September, business confidence jumped 4 points to +5.

Business conditions, which is a better guide to the actual performance of the economy (rather than the more esoteric ‘confidence’ reading) remained at a healthy +9 points – a level consistent with a steady economic expansion.

While consumer and business confidence remains below the boom time levels witnessed at times when the economy is very strong, a clear upswing suggests that growth is poised to lift from the weak 2.0 per cent pace recorded through to the middle of 2015.

If these recent gains in confidence can be sustained and even built upon in the months ahead, economic growth would be on track to get back to a three per cent pace, perhaps more, which would be sufficiently robust to make some inroads into the decade-high unemployment rate evident through the course of the past year.

This is clearly what Treasury is hoping for and the stronger economy would no doubt feed well into the prospects for the Turnbull government as the election in 2016 gets closer.

A stronger economy would help boost tax revenue and lower the budget deficit which was something that Mr Hockey as Treasurer was never able to achieve.

On the issue of better economic times, it is noteworthy that commodity prices have generally been increasing over the last two months and indicators such as retail trade, housing construction and conditions in the services sector have all lifted.

Also read: Business hails Australia's new leadership

Even the usually cautious RBA has painted a more rosy outlook for the economy in its recent speeches and publications with its view based largely on the positive effects of record low level of interest rates and the now ultra-competitive Australian dollar exchange rate.

To be sure, there is a risk that the confidence bounce is a short-term reaction to the political changes and as such, it could quickly unwind.

The proof as to whether this more favourable tone is justified or is merely a "sugar hit" based on the assent of Turnbull, will be in the changes policy agenda that will be released before year end.

If Turnbull can validate the jump in optimism evident in recent weeks with a constructive, more visionary policy framework, the economy will at long last pick up steam.

 

Stephen Koukoulas is a Yahoo7 Finance expert with 

more than 25 years experience as an economist in government, as Global Head of economic and market research, as Chief Economist for two major banks and as economic advisor to the Prime Minister of Australia.