Australia’s Prime Minister Wins Leadership Vote

Prime Minister of Australia Julia Gillard with former Prime Minister Kevin Rudd in the background.
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Prime Minister of Australia Julia Gillard with former Prime Minister Kevin Rudd in the background.

Australia's Prime Minister Julia Gillard won a leadership contest on Thursday unopposed, although analysts said the vote was unlikely to end damaging internal divisions with a risk that elections scheduled for September may have to be held earlier.

The unexpected leadership vote followed a call by a senior member of the ruling Labor Party earlier on Thursday to call a ballot to end internal fighting and a decline in opinion polls that suggest the party is on course for a crushing election defeat.

Rival and former prime minister Kevin Rudd, who was expected to stand against Gillard in the leadership ballot, said he would not stand as he did not have enough support to replace her, adding a twist to the political drama. The Labor party has been hit by divisions between Gillard and Kevin Rudd, who led the Labor Party to win elections in 2007 but was deposed by Gillard in 2010.

"It is obvious that the Labor Party is in disarray," said Peter Chen, lecturer in politics and policy at the University of Sydney on CNBC's "Capital Connection."

"There is now a question mark over whether she (Gillard) can hang on until the September election date. She may be forced to call an early vote to reaffirm her legitimacy," he added.

Political uncertainty weighed on Australia's stock market, which closed about 0.2 percent lower, while the Australian dollar held steady around $1.0375. An upbeat manufacturing survey from China helped support the Aussie dollar and shares.

Analysts said there was also a chance that the opposition conservative party led by Tony Abbott could push for another vote of no confidence in parliament, to force an early election.

A no-confidence vote called by the opposition was rejected earlier on Thursday.

"We are going to see Tony Abbot and the Liberals in parliament push for another vote of no confidence – they only need to secure another three votes to win," Tom Averill, managing director at Rochford Capital told CNBC.

"For Gillard this vote was a case of put up or shut up but I don't think it has done the Labor Party any favors," he said.

Gillard has failed to arrest a sharp decline in opinion polls, which point to a major defeat in September with Labor expected to lose about 20 seats in the 150-seat parliament

The conservative opposition party led by Tony Abbott is expected to win the September elections. It has promised to end a 30 percent tax on coal and iron ore mine profits and to scrap an unpopular carbon tax if it is elected.

No Worries

The political strife in Australia may weigh on local markets in the very near-term but was unlikely to have a long-term impact on the Aussie dollar or share markets, analysts said.

The bottom line was that the political development did not change the outlook for Australia's economy or the forecast for interest rates, set by the Reserve Bank of Australia (RBA).

The RBA left interest rates steady at its March meeting amid signs of a pick-up in the economy and many economists have scaled back expectations for further interest rate cuts in the months ahead. 100566000

"The political developments do introduce some level of uncertainty in that business confidence may suffer but it doesn't change the outlook for the economy, which is steady as she goes," said Matthew Circosta, an economist at Moody's Analytics in Sydney.

"The move in the Australian dollar today is indicative of that," he said.

Sean Callow, senior currency strategist at Westpac Bank, said that the Australian dollar had proved resilient in the past to any political turbulence at home, falling briefly in 2010 in reaction to an election that produced an unexpected outcome: a hung parliament.

"We do get questions from international investors about what this (politics) means for Australian assets but it is more out of curiosity than anything."

- By CNBC.Com's Dhara Ranasinghe, Follow her on Twitter: @DharaCNBC