Australia - Economic luck runs out for PM

JOHN HOWARD'S economic good fortune seems to have deserted him during his final election campaign.

The Coalition Government has a reputation as a good economic manager, but there is always an element of luck to that, and Howard has had his fair share.

During his term in office, the Australian economy has benefited from a global phenomenon that economists call the "great moderation" - a long period of relatively stable economic conditions worldwide, underpinned by low and stable global inflation and interest rates.

It has been a great time to be in power anywhere in the world, and the Howard Government is one of many incumbents to thrive on the benign economic backdrop.

There have been some challenges, such as the Asian financial crisis and a mild US recession, but the good economic times have been sustained by many factors beyond any government's control.

Even the timing of the GST's introduction in mid-2000 - a deeply unpopular policy at the time - turned out to be fortuitous. The modest downturn that followed the tax's introduction "reloaded" Australia's growth cannon just as the US economy slumped following the Wall Street tech wreck.

Instead of being dragged down by the US, like many developed economies, the post-GST upswing helped inoculate the Australian economy from problems abroad.

As the GST effect faded, an unprecedented housing boom emerged to buoy the economy. The "wealth effect" created by soaring house prices boosted consumer spending and underpinned a growth spurt.

Then, just as housing markets in Sydney and Melbourne turned sour and threatened to take a heavy toll, the global resources boom - fuelled by China's economic miracle - kicked in to keep the good times rolling.

No one could have organised this course of events, which has been driven mostly by global economic trends.

As Chris Richardson, a former Treasury official who is now director of Access Economics, said when the Howard Government reached its 10th birthday last year: "It's been a good government but also a lucky government."

With unemployment at a 33-year low of 4.2 per cent, the economy is still one of Howard's key political assets.

But in the past few months the economic cycle has clashed with the electoral cycle.

After a decade and a half of continuous growth, Australia's economic capacity has been stretched to the limit.

The inevitable inflationary pressures that accompany those circumstances - brewing for some time - have emerged in the prelude to the election.

A surprisingly high reading for underlying inflation for the June quarter prompted the Reserve Bank to lift interest rates in August.

Then came Wednesday's September quarter consumer price index, which showed inflation still in the bank's red zone and threatening to move higher. Those figures appear to have paved the way for yet another rate rise, this time just a fortnight before the election.

One of the Coalition's great strengths - its economic story - is being sabotaged at the worst possible moment.

All of a sudden Howard is down on his economic luck.