Monday, 8 June 2009
Welcome to the latest edition of my economic note. The release of our
National Accounts last week showed just what Australians are capable of when we
pull together in the face of adversity. While virtually every other advanced
economy in the world is going backwards, the efforts of people right around the
country have seen our economy go forward. It’s a testament to the unity and
resilience of all Australians that in the midst of the worst global economic
conditions in 75 years, we achieved the strongest growth of any advanced
economy.
Global Recession
In last week’s note, I referred readers to this
OECD table showing recent GDP
outcomes for OECD countries. We are still awaiting the March quarter GDP
outcomes for a few countries, however of the 30 economies making up the OECD, 29
have contracted at some point since the onset of the global crisis, and 24 are
in recession.
We also received further news last week of the impact this global recession is
having on unemployment in advanced economies. The unemployment rate for the Euro
area reached 9.2 per cent in April, the highest rate in almost 10 years. In
Canada, the unemployment rate rose to 8.4 per cent in May. While in the US, the
unemployment rate has risen to 9.4 per cent, its highest rate in more than 25
years. The US economy has now shed 6 million jobs since the start of the US
recession in December 2007.
National Accounts
The
National Accounts released last week showed that the Australian economy has
outperformed every other advanced economy, recording positive growth in the face
of the savage global recession. The Australian economy grew by 0.4 per cent in
the March quarter – the strongest outcome of any advanced economy in the world.
The major advanced economies contracted by 2.2 per cent in the same period.
Household Spending
Australia’s growth outcome would not have been possible without a solid rise in
household consumption. Despite the further deterioration in the global economy,
households lifted their spending by 0.6 per cent in the March quarter. This is
the clearest possible sign that the Government’s cash stimulus payments to
households are working to support jobs and growth in our economy. In fact,
Treasury estimates that without these cash payments, the Australian economy
would have contracted by around 0.2 per cent in the quarter. This means fewer
job losses and thousands of families saved the loss of a breadwinner. You can
find more information on the household consumption result, and a comparison of
Australia and Canada’s recent economic performance, in this
article by David
Uren in The Australian.
Last week’s
retail trade figures showed our cash payments to households are
continuing to support consumption, with the value of retail sales rising by 0.3
per cent in the month of April. It’s important to keep in mind that the cash
payments are just the first phase of our economic stimulus plan, with most of
the stimulus still to flow through in the second and third phases. This stimulus
will see 35,000 building sites spring up around the nation, and continue to
support our economy and jobs over the coming months.
Export Earnings
The other contributor to Australia’s growth in the March quarter was a solid
increase in our exports, which rose 2.7 per cent in the March quarter. However,
the trade figures for the March quarter did contain some warning signs as to
future challenges for the Australian economy. While our export volumes have held
up, export earnings have been hit hard by this global recession as the prices of
our key commodity exports have tumbled. Export earnings fell by around 7.5 per
cent in the quarter, the third largest fall on record. This brings me to this
week’s Fact of the Week, which is that Australia’s terms of trade – the price of
our exports compared to the price of our imports – fell by 7.8 per cent in the
March quarter, the largest quarterly drop in 35 years. This is one of the
consequences of the unwinding of the mining boom, which has done so much damage
to the Budget.
Support for Stimulus Strategy
Last week, 21 Australian economists endorsed the Government’s strategy to battle
this global recession in a published letter in the Australian Financial Review,
among them Nicholas Gruen, CEO of Lateral Economics, Saul Eslake, Chief
Economist of the ANZ Bank, Bernie Fraser, former Governor of the Reserve Bank of
Australia, and Steve Dowrick, Professor of Economics at the Australian National
University.
Writing about the Government’s cash stimulus payments, the 21 economists wrote
“There is no more effective way to stimulate the economy quickly. The success of
this measure can be seen in the relative strength of Australian retail sales
compared with almost any of our peers. In addition the Government plans to spend
many billions more on infrastructure.” The 21 economists note that Australia’s
public finances remain in a very healthy position and argue that “Deploying our
strong balance sheet to use otherwise idle resources … to build assets that
improve our lives and our economy in the future, seems much more appealing; much
more commonsensical than retreating into phobias.”
Reserve Bank
At its meeting last Tuesday, the
RBA Board decided to leave the official
interest rate unchanged at its lowest level in almost 50 years. Interest rate
reductions have seen mortgage rates fall to around 5.75 per cent, delivering
savings of $750 a month to a family on a $300,000 mortgage. These lower interest
rates, combined with the Government’s economic stimulus, are helping to cushion
Australians from the very worst of the global recession, a point also emphasised
by the Governor of the Reserve Bank in his
speech last week.
Coming Up
The main economic news this week will be housing finance data for April, and labour force figures for May. While last week’s National Accounts were encouraging, we know we aren’t out of the woods yet. The full impacts of this global recession still have some way to run, with impacts for jobs here at home. We face a rocky road ahead, and we’re going to need every ounce of effort to get through. But I think the clearest message from the National Accounts is that all Australians are ready to do their bit, and to front up to the big challenges that lie ahead of us.
Wayne Swan
Treasurer of Australia