Confidence is the trick for Malcolm Turnbull, economists say

Prime Minister Malcolm Turnbull will need to focus on confidence in order to fulfil his first big pledge to provide an "economic vision for the nation".

"We will have now, an economic vision, a leadership that explains the great challenges and opportunities that we face, describes the way in which we handle those challenges, seize those opportunities, and do so in a manner that the Australian people understand," he said.

"So that we are seeking to persuade, rather than seeking to lecture."

And there is a fair bit of persuasion to do.

National Australia Bank's respected Business Survey last week found confidence was unwinding.

"Following this month's decline, post-budget gains have been completely unwound and the trend has turned down," the NAB noted.

The ANZ-Roy Morgan Consumer Sentiment rating is out today, but was taken before the surprise dumping of Tony Abbott.

The rating showed another decline, back to two-year lows.

Westpac's most recent measure of consumer confidence dived almost 6 per cent in August with pessimists now well outnumbering optimists.

Post-spill confidence

The first post-spill reading of sentiment among economists shows confidence — at least in that select group — appears to have ticked up.

Morgan Stanley strategist Daniel Blake said the change was an opportunity to reboot infrastructure spending, foster productivity and innovation, and deliver tax reform.

Business groups have been clamouring for reform and more focus on the economy, and Turnbull has promised to deliver.

JP Morgan chief economist Stephen Walters

"The Liberal Party promised an infrastructure stimulus, but delivery has fallen well short of expectations," Mr Blake said.

"In fact, rather than supporting the transition from resources capex (capital expenditure), public investment has been declining."

Mr Blake suggested with net debt at just 14 per cent of GDP, the Turnbull Government had up to $80 billion worth of fiscal fire-power at its disposal without threatening Australia's AAA-credit rating.

"The forthcoming Tax Reform White Paper may be refocused by new management, but we think it should not be abandoned given the structure of the economy and tax base evolving quickly," Mr Blake said.

"We would hope that policy areas previously ruled out of potential change, including negative gearing and superannuation/retirement incomes, are allowed back into a genuine debate."

"Business groups have been clamouring for reform and more focus on the economy, and Turnbull has promised to deliver," JP Morgan chief economist Stephen Walters said.

"This may help to fill the big missing piece in Australia's economic jigsaw — corporate animal spirits and the lack of business investment spending."

Need for 'better articulation'

However, Mr Walters said much of the work will be left up to a "better articulation" of the Government's agenda, rather than any sudden changes in policy.

Royal Bank of Canada's chief economist Su-Lin Ong said the leadership change should boost business confidence that has remained below its long-run trend and has struggled to gain any momentum in recent years.

"We are mindful that the global economy has faced numerous challenges during this period but we have long argued that confidence is structurally weaker due to the lack of strong national leadership, little focus on much needed reform to boost long-run growth, and the lack of a clear economic narrative," Ms Ong wrote in a note to clients.

"On a related note, the possibility of sustained stronger business confidence reduces the odds of further easing and at the very least is likely to keep the RBA on the sidelines for longer."

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