Investing.com – Strategists Morgan Stanley (NYSE:) Australia recently assessed the impact of the Australian Federal Budget for FY25 on the country’s stock market. The Budget, they say, is a mixed bag, providing some protection against downside risks but complicating the potential for significant cyclical growth.
The main purpose of the budget is to mitigate the impact of the crisis, address consumer risks by supporting the cost of living and lay the foundation for future investment pathways. However, strategists say the budget provides more of a buffer than a direct improvement in economic conditions.
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Already legislated tax cuts are significant, but take time to impact observed spending habits. Likewise, subsidies designed to offset future costs will help mitigate inflation pressures but will provide limited stimulus. For businesses experiencing wider tightening, the July 1 stimulus and associated backlogs may seem a long way off.
The federal budget also complicated the path to significant monetary easing. While headline inflation is expected to decline in 2024, the removal of subsidies is likely to reverse base effects in 2025. Additionally, long-term investment policies, while prudent, offer limited additional incentives to accelerate spending.
Finally, the housing supply needed to address the housing production and rental shortages is unlikely to recover over the market period of time based on announced policies.
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Thus, MS strategists concluded that while some buffers have been reintroduced, a higher-rate environment for longer is likely. This is contrary to the prevailing consensus position in cash rate sensitive sectors. While the budget helps protect against downside risks, the path to strong cyclical growth remains challenging.