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Election 2022: What will the economy look like on polling day?

·4-min read
Australian Prime Minister Scott Morrison speaks to the media. (Source: Getty)
The PM will be hoping there are no shock economic revelations during next year's campaign. (Source: Getty)

Economic conditions determine the result of most elections, or at the very least, have a huge sway in the way people vote.

If you’ve had to close your business, you’re unemployed or struggling to make ends meet, you’re unlikely to vote for the incumbent party, blaming them for the pain that has been inflicted.

But it doesn’t even have to be that personal.

Many voters are often influenced by the overall performance of the economy. They will reward a Government that is presiding over extended strong growth, a decent level of job creation, rising living standards and one that is managing the budget in a sustainable and responsible fashion.

That brings us to the looming federal election, which Prime Minister Scott Morrison is likely to call for Saturday, 21 May, 2022.

The economic data flow will continue to roll out till that date as the political parties move into campaign mode.

As this politicking happens, there is always a risk that a shock reading on the economy or a high-profile policy change will influence at least some voters.

Who can forget the devastating blow to the Howard government in November 2007 when, in the face of rapidly accelerating inflation, the RBA hiked interest rates to 6.75 per cent during the election campaign and just 17 days before polling day?

While this economic event did not necessarily alter the election outcome, it likely swayed a significant number of impressionable voters - mortgage holders most likely - to steer away from the Liberal Party.

What’s in store for the 2022 election campaign?

In terms of monetary policy, the RBA has suggested interest rates will be on hold until well into 2023 or even into 2024.

This is despite the escalation of inflation globally and, to some extent, here in Australia.

Investors are largely ignoring the RBA guidance, with the futures market pricing in about a 50 per cent chance of an interest hike to 0.25 per cent at the RBA board meeting on 3 May and a cash rate of 1.5 per cent by the middle of 2023.

The RBA has in the past rapidly changed its view on the economy and adjusted its policy accordingly.

Given the momentum on inflation in recent months, there is a real possibility inflation, wages growth and labour-market conditions more broadly could be strong enough to force the RBA to move rates in the lead-up to a May poll.

In terms of the specific data points, the quarterly consumer price index, which includes details of the various measures of inflation, will be released on 27 January and 27 April, the latter being a week before the May meeting of the RBA.

If inflation continues to accelerate – and there is a very real prospect some of the high inflation seen internationally will be reflected in the Australian data - the RBA will be under some pressure to hike.

As far as wages go, the six-monthly average weekly earnings data are released on 24 February, while the highly influential quarterly wage price index (WPI) is released on 23 February and 18 May.

The WPI will be illustrative for the general wages debate and a further lift in wages growth could sway the RBA.

The labour force figures will continue to be released monthly and the post-lockdown recovery in employment and the unemployment rate will be a vital benchmark of economic management.

A close-up shot of Reserve Bank governor Philip Lowe speaking.
RBA boss Philip Lowe has so far stood firm on keeping interest rates steady in the near term. (Source: AP)

The numbers should be ‘good’, given the surge in job vacancies and advertisements. The key dates for the monthly labour force data will be 17 February, 17 March and 14 April.

Strong employment data, if that is what we see, will be highlighted by the Government as a sign of its economic management prowess.

There is some chatter that the Government will bring forward the annual budget to March, in which it can outline a few electoral sweeteners to voters. It will also give the latest news on the budget deficit and the level of government debt - issues that still can impact voter sentiment.

That said, the budget deficit is certain to be wide - around $50 billion per annum - and Treasury will confirm that government debt will be on track to exceed $1 trillion.

The departments of Treasury and Finance will have to release the Pre-Election Fiscal Outlook a few weeks before polling day. That will update the budget, even if it is only a few weeks old.

All up, there will be a lot of sensitive and potentially influential economic news delivered as polling day looms.

These data points will have an increasing probability of influencing the election outcome, with good news helping the Coalition and any bad news undermining their credentials for re-election.

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