Australia – Crisis Response Boosts Morrison

The center-right government made up of the LP, the NP, and their state counterparts in Queensland and the Northern Territory got off to a rocky start following an unexpected win at the federal elections held in May 2019, but the health crisis created by the COVID-19 pandemic has provided an opportunity for Morrison and his Cabinet to display competence, cool under pressure, and an ability to work cooperatively with state officials.

The success in managing the virus has not been achieved without economic pain, as reflected in the date for growth, unemployment, and tourism earnings, and it is still too early to declare the battle won, as is made clear by the appearance of new variants of the disease in Brazil, South Africa, and the UK. That said, the government’s performance has left the ALP with little to criticize, and Morrison is leading his ALP counterpart Anthony Albanese by a two-to-one margin in polls of preferred prime minister.

The prime minister has deflected speculation of an early election, but a weak showing for Labor at an upcoming state election in Western Australia might convince him to gamble on an early national vote.

Morrison’s tough stance toward China may be helping his party draw support away from the far-right One Nation, but the negative impact on the agricultural sector resulting from higher Chinese tariffs on farm products imported from Australia could come back to bite the Coalition. However, Canberra is unlikely to be persuaded to adopt a more conciliatory posture as long as China’s dependence on Australia’s iron ore and other resources limits its ability to inflict direct economic harm.

New investment legislation entered into force at the beginning of this year with the first major reform of the Foreign Acquisitions and Takeover Act of 1975, which was clearly motivated by concerns about foreign powers investing in sensitive areas, such as mobile technology. Although Australia will remain an open and welcoming place in which to do business for most investors, the legislation introduces safeguards designed to ensure that national security is not compromised as a result.

The pandemic has thrown the fiscal metrics completely off kilter. The size of the near-term fiscal shortfall will be unprecedented, the debt burden will increase significantly over the next few years, and there is no guarantee of returning to the pre-pandemic trajectory for the foreseeable future.

The mass production and distribution of several effective vaccines brightens the prospects for abatement of the global crisis by the end of this year, but the appearance of faster-spreading variants that may yet prove to be resistant to currently available vaccines highlights the continued risk of delays in fully subduing the disease. In the meantime, both Fitch and Standard and Poor’s have assigned a negative outlook to Australia’s AAA credit ratings.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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