Chinks in Economic Armor Leave Australia's Turnbull Vulnerable

(Bloomberg) -- Australia's Prime Minister Malcolm Turnbull faces a deeply uncomfortable milestone -- perhaps a millstone -- on Monday.

Having cited the government's poor performance in 30 consecutive opinion polls to justify his successful challenge for the leadership in 2015, Turnbull is about to hit the same mark himself.

Turnbull has sought to take the initiative, highlighting his success in delivering economic leadership and a return to Cabinet-style government that were also central to his rationale for wresting the prime ministership from Tony Abbott. But with elections due next year, he knows the clock is ticking to turn around the government's fortunes, even though there's no obvious challenger waiting in the wings.

“While the economy is recording good numbers, the electorate isn't feeling the benefits of that strength to the extent that they would be willing to give the government credit for it,” said Zareh Ghazarian, a Melbourne-based professor at Monash University's School of Political and Social Inquiry.

In an interview with the Australian Financial Review published Friday, Turnbull spruiked his economic leadership.

Jobs and Growth

“The strongest jobs growth in the nation's history surely is a demonstration that our economic policies are working and the confidence, the support for investment, the support for employment which we are delivering is paying results,” the newspaper cited him as saying. “What I have to do is just keep on delivering.”

Nevertheless, conservatives within his party are warning of a challenge as early as August if next month's budget fails to improve the government's standing, the AFR said, without citing sources.

Unemployment has fallen to 5.6 percent from 6.2 percent when Turnbull took office in September 2015, and the economy generated 400,000 jobs last year, a record three-quarters of them full-time positions.

The budget is on track for its first surplus in more than a decade, keeping intact the much-vaunted AAA credit rating; business conditions have hit record highs, spurring a long-awaited lift in investment beyond mining; and bubble-like conditions in the Sydney and Melbourne property markets are slowly deflating in what looks like a soft landing for housing.

It's a strong scorecard. But there have been two telling chinks in Turnbull's economic armor.

Stagnant Wages

First, wages are stagnant and in some cases have fallen when adjusted for inflation. That means that for the first time in a long time, Australians feel like they're going backwards. Compounding that, in order to buy homes in rising markets they've have had to take out hefty mortgages, pushing household debt to a record. Unlike in the past when rising wages and asset prices allowed people to inflate away their debts, that's no longer an option.

Second, the government has been beset by scandal and own-goals -- including former Deputy Prime Minister Barnaby Joyce's extramarital affair -- which drowned out its narrative every time it tried to turn the focus to the economy.

“The government also isn't doing itself any favors with leadership speculation and the other internal problems they're encountering,” said Ghazarian.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net.

To contact the editors responsible for this story: Edward Johnson at ejohnson28@bloomberg.net, Peter Vercoe

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