Following a party room vote last night, Malcolm Turnbull is now Australia’s Prime Minister (PM) after winning the Liberal Party leadership 54 to 44 votes.

Malcolm Turnbull is known as a Liberal Party moderate – less socially conservative (he ran the Republican campaign several years ago) but committed to free market economic solutions.

This is Australia’s fourth PM in 28 months, and the change reflects the poor polling of the Government under Tony Abbot.

What does this mean for the economy?

The change in PM does nothing to change Australia’s current economic reality flowing from the end of the resources boom and the resulting soft economic growth, which in turn has been playing a role in driving the political instability in recent times.

It’s also early days with the new PM yet to fully articulate any changes in economic policy. Therefore, we’re in no rush to change any forecasts or views on the Australian economy and investment markets. In saying this, the change in leadership has the potential to help Australia.

Firstly, Malcolm Turnbull is a more popular leader in Australia including amongst Labor and swinging voters. As a result, we are likely to see a short term boost in economic confidence.

What’s been lacking for years has been a strong articulation of Australia’s economic challenges and the necessary reforms designed to address these areas – this is exactly what Australia needs now.

How has the market responded?

While the Australian dollar has risen slightly in response to the change in PM, ASX 200 futures took their lead over night from what happened on Wall Street and fell slightly. In the short-term Australian shares and the Australian dollar will continue to be afflicted by developments around the US Federal Reserve and China but a reinvigorated reform agenda and more confidence out of Canberra will help.

About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital's diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.