Second coming

Australia's political bang is an economic whimper

The downfall of Australia's prime minister is a political bang but an economic whimper. Julia Gillard has been ousted as head of the ruling Labor Party by Kevin Rudd, the man she replaced three years ago. The dramatic switch might make the looming election a closer contest. But the country's economic future depends more on events in China than in Canberra. As political theatre, the rivalry between Gillard and Rudd is hard to match. Rudd has been a thorn in his former deputy's side ever since she successfully challenged him before the 2010 election.

As Gillard's popularity has waned, speculation has mounted about Rudd's return, though until recently he lacked the necessary support. In March, he declared there were "no circumstances" under which he would return to the leadership. The Labor Party's change of heart is driven by straightforward electoral self-preservation. With Gillard at the helm, the party was heading for a hefty defeat at the election, scheduled for September 14. Recent polls have offered Labor hope that, with Rudd in charge, it would stand a better chance against the opposition Liberal-National coalition.

Rudd's return probably won't enable Labor to hang on to power. But it does give the election a renewed focus. Opposition leader Tony Abbott has pledged to roll back the country's mining and carbon taxes, while cutting welfare payments. Rudd - who masterminded the mining tax when he was last in charge - says his U-turn on standing for the leadership was prompted by concerns about the policies that would follow a decisive Liberal National victory.

Yet, whoever wins will inherit the same set of economic challenges. The slowdown in China has dampened the demand for commodities that has helped sustain Australia's two decades of unbroken economic growth. Though exports to China account for just five per cent of the country's GDP, weakness there further depresses the price of the commodities Australia sells globally. This, combined with the possible reversal of cheap money flows from the United States, has undermined the Australian dollar, which has fallen by 11 per cent against its US counterpart this year. However dazzling the raw politics on display in Canberra, the strongest forces determining Australia's economic fate are elsewhere.