Sunday, April 5 2009

Welcome to my latest economic note highlighting developments at home and overseas.

The past week has seen the release of two significant reports confirming that the world economy is in the midst of its deepest and most severe recession in living memory.

Both the OECD and World Bank have dramatically revised down their forecasts for global growth. The OECD forecasts output for advanced economies will fall by 4.3 per cent this year, and the World Bank expects global output to contract by 0.6 per cent in 2009. This would be the first fall in global output since the Second World War and has profound human consequences.

As I and some of my senior colleagues have been saying for some time, the worsening global recession and dramatic downgrades in global growth unfortunately make it inevitable that Australia will experience a period of negative growth. Though Australia is better placed than other nations, we can’t defy gravity when it comes to this global recession.

The dramatic downgrades in global growth forecasts underscored the importance of this week’s G-20 Leaders’ Summit in London, which I attended with the Prime Minister.

US President Barack Obama described the Summit in his press conference as "a turning point in our pursuit of global economic recovery." In their communiqué, Leaders pledged to take whatever action is necessary to restore confidence in the global economy; support growth and jobs; repair the global financial system; and strengthen financial regulation to rebuild trust in the global financial system.

Importantly, G-20 Leaders reached agreement on a $1 trillion (US dollars) program to restore credit, growth and jobs in the world economy through our international financial institutions.

Together, the G-20 – which represents the world’s 20 most important economies – has taken unprecedented fiscal action, which brings me to this week’s Fact of the Week. The fiscal expansion being undertaken across G-20 economies will amount to $5 trillion (US dollars) by the end of next year. This action will support activity and jobs that might have otherwise been lost in this severe global recession.

And we saw the severity of this global recession in the US over the weekend, where new figures revealed that an additional 663,000 Americans lost their jobs in March and the unemployment rate jumped to 8.5 per cent, its highest level in more than 25 years. More than 5 million Americans have lost their jobs since the US recession began.

Back home in Australia, Deputy Governor of the Reserve Bank, Ric Battellino, gave an important speech to the Urban Development Institute of Australia this week. He said that while we can’t completely insulate ourselves from what’s happening abroad, our economy has held up much better than most and is well placed to benefit from the global recovery when it comes.

On the domestic data front we received further evidence this past week that our first economic stimulus continues to support retail activity, with turnover remaining well above its levels of last November (before our first stimulus payments were made).

Retail sales activity in February was 2.3 per cent higher than the figures recorded in November last year. Without the decisive action taken by the Government these figures would have been much worse. Just consider what’s been happening in other parts of the world. Since November 2008, retail activity in Canada has fallen by more than 3 per　cent, in Japan it has fallen by more than 2 per cent, and in the US it has fallen by 1.4 per cent.

On Friday, the High Court confirmed the validity of our additional stimulus measures. This means that those people eligible should start receiving their Tax Bonus from this week. These payments will help support jobs until our nation building investments kick in.

We also saw tentative signs of improvement in housing activity, with building approvals rising by 7.8 per cent in February. Approvals for new homes have now risen in each of the past three months which is certainly encouraging.

Trade data for February saw Australia record its second highest trade surplus on record. Particularly encouraging for our farmers, was the 6 per cent increase in rural exports, such as grains and wool.

The Reserve Bank Board will meet on Tuesday to take its decision on interest rates. I of course don’t speculate about those decisions – we will wait and see what the outcome is. But there have been some very big cuts in interest rates over recent months and that is helping to make these difficult times a little easier for a lot of Australians.

This coming week we will also receive employment figures for March. Unfortunately, this worsening global recession is resulting in significant job losses right around the world. The OECD revealed this past week that it now expects that unemployment across advanced economies could rise by 25 million by the end of next year. That has obvious consequences for jobs here.

That’s why today the Government has announced important measures to help those who, through no fault of their own, cannot maintain or find work at the moment.

The Government will establish a jobs and training compact with the people most vulnerable in these economic times: retrenched workers, young people and those living in communities most affected by the global economic downturn. We will provide each of these groups with access to support and training places to help them get back to work, or to develop the skills needed to get a job.

I have also negotiated an agreement with Australia’s four big banks to offer a 12 month period of relief from mortgage payments for workers who have reliably paid their mortgages and have then lost their jobs. This option won’t work for everyone, but it will be available for those in　greatest need. It means that workers who have gone through the trauma of losing their jobs　will have up to 12 months grace from the stress of having to find the money to service their home loans.

This Government is doing everything it responsibly can to cushion Australians from the worst the world can throw at us. Because in these difficult times one thing is certain – without our decisive action growth and jobs outcomes would be much worse.

Wayne Swan
Treasurer of Australia