The economics of elections

It is a widely held belief the Australian economy slows as elections loom. ANZ Research tested this by looking at data in the months running up to the 14 elections since 1980, including: employment, unemployment, retail sales, consumer confidence and business conditions. 

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Running into elections, the finding was the performance of these indicators varies and is impacted by the time periods being compared. 

"This widely held belief is not grounded in fact.”

The clearest example of data slowing into the election is employment growth. But this is not the case in all instances. In particular, when comparing the three months leading into the election with the period four to seven months earlier, employment growth has tended to accelerate.

Despite this, ANZ Research thinks it reasonable to conclude employment growth slows in the immediate pre-election period.

This does not come at the expense of higher unemployment. Since 2000, the unemployment rate has had a slight tendency to be unchanged or lower in the three months before an election; but the difference is modest.

There is also little difference in monthly retail sales growth. For the sentiment indicators, consumer confidence has a tendency to rise while business conditions are mixed. The differences are small.

So this widely held belief is not grounded in fact.

As far as implications for the RBA are concerned, ANZ Research is guided by the bank’s most recent statements about what will impact its policy deliberations. In particular, the RBA focused on changes in the unemployment rate, saying:

“If there were…to be a sustained increase in unemployment and a lack of progress in returning inflation to target, it might instead be appropriate to lower the cash rate.”

With this in mind, ANZ Research’s findings suggest Australians shouldn’t think too much about how the coming election will impact the data. There are other things to focus on, such as whether credit tightening has run its course.

However we are not saying the election result itself doesn’t matter - that is a different question entirely.

David Plank is Head of Australian Economics & Bansi Madhavani is an Economist at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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