Political Monitor

Political uncertainty returns to crisis levels

Country Risk, Risk Index

Political uncertainty returns to crisis level

9 February 2015: Australian businesses are confronting the highest level of political uncertainty in nearly a year as Prime Minister Tony Abbott fights off leadership instability, uncertainty remains around the outcome of the Queensland election and events in Europe and Ukraine pose risks for global markets.

This is the latest data from the Political Monitor Australian Political Risk Index. The proprietary index tracks political and policy uncertainty on a daily basis and is comprised of a number of variables and inputs that measure both political uncertainty and the implications of that uncertainty for business forecasting. It is the only index of its kind in Australia.

The index reached an 11-month high of 12.74 on 3 February 2015; its highest level since early March 2014 when uncertainty about the future of the mining and carbon taxes abounded, government in South Australia was in limbo and events in Ukraine rattled global markets. The index had eased somewhat over the Christmas – New Year period but jumped markedly higher as politics returned to centre stage leading into Australia Day.

Political Monitor expects the index to continue trending higher over coming days as the business of government all but grinds to a halt while the federal Liberal Party addresses its leadership issues and markets digest the latest from Greece’s negotiations with its creditors. Adding to uncertainty will be continued volatility in oil prices as geo-political factors drive supply.

Political Monitor Partner Damian Karmelich argues that the level of uncertainty being felt by the business community is in some ways more severe than during similar periods of leadership crisis under Labor because there had always been the hope that a new government would bring an end to years of division and drift.

“As bad as the Rudd – Gillard years were there was a broad perception by many in the business community that those years were an aberration that would be rectified with the election of a new government”, said Mr Karmelich.

“However, the latest events have revealed a deeper crisis within the nation’s political class in which the hard business of government is mishandled or avoided. Within the business community there is now a realisation that both parties are infected with personality politics and there is little certainty about who is in charge and what policy direction they may take. This uncertainty will ultimately reveal itself in investment and hiring decisions.”

Throughout 2014 the Australian Political Risk Index had proven to be volatile but this was mainly in response to global political events such Russia’s annexation of Crimea, the ongoing Euro crisis, elections in key markets such as India, Indonesia, the EU and USA, and the politics of oil. Domestic events such as the ongoing debate about the mining and carbon taxes added to business uncertainty. However, over recent weeks the index has been most heavily influenced by political events in Australia.

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