Monday, April 20 2009
Welcome to the latest edition of my economic note. This
past week we received some really important updates on the
international front, and some further indications of the
economic headwinds we currently face in Australia as we go
about putting this year’s Budget together.
China and Singapore
This week we received stark evidence of the impact this
global recession is having on our own region. Growth in
China, our biggest trading partner, slowed to 6.1 per cent
over the year to March this year. To put this into
perspective, China’s growth rate has now halved in a little
over 12 months to its lowest rate in almost a decade. But
fortunately, we are also seeing early indications that the
Chinese Government’s large fiscal stimulus package is
working to help support activity in their economy, with
notable improvements in lending and production.
We also saw a very big contraction in Singapore’s
economy, another of our key trading partners. Singapore’s
economy contracted by a massive 11.5 per cent over the year
to the March quarter. This result was much worse than most
were expecting and represents the Singapore economy’s most
severe contraction for over three decades.
Unfortunately, the deep downturns in the world’s largest
economies and our key trading partners will have very big
consequences for our own economy. As we have been stressing
for some time, though we are much better placed than most
nations, it is inevitable the impact of the global recession
will be felt here.
That’s why the Government is so committed to doing
everything it responsibly can to help cushion Australians
against the worst impacts of this global recession and
ensure we are well placed to take full advantage of the
global recovery when it comes.
Global Response
Recent
analysis from the International Monetary Fund suggests
that while the current global recession could be unusually
long and severe, strong policy action – particularly
expansionary fiscal policy – combined with the restoration
of confidence in the financial sector could help accelerate
and strengthen the recovery.
Last week, the Japanese Government outlined its biggest
fiscal stimulus package, totalling 15.4 trillion yen (or 3
per cent of GDP) to be spent over several years. This is the
fourth package that Japan has announced in response to the
global slowdown.
For those interested in reading more about global
responses, I would refer you to this recent
speech by US President Barack Obama, which outlines the
unprecedented actions his Administration has taken.
Here at Home
Figures released last week provided mixed signals on the
state of our own economy.
In a welcome piece of news, the
NAB Monthly Business Survey recorded a significant
rebound in business confidence during March, following a
similar jump in February. Though we don’t read too much into
one month’s figures, the improvement in business confidence,
following last week’s improvement in consumer sentiment, is
certainly encouraging.
Other data continues to indicate that our economy is
feeling the effects of this global recession. The
Westpac-Melbourne Institute Leading Index, a key
indicator of future economic activity, gave us some pretty
familiar indications that the Australian economy is
weakening in the face of the global recession.
Measures to Combat Binge Drinking
During the week, Nicola Roxon and I announced that the
Government will
re-introduce the alcopops measure into the Parliament as
part of our ongoing commitment to the fight against binge
drinking. This measure ensures that all spirits are taxed at
the same rate whether they are consumed as alcopops or full
strength spirits, closing the tax loophole provided to the
alcopops industry by the previous government in 2000.
This brings me to this week’s Fact of the Week. Our
alcopops measure – supported by health experts, police
superintendents and community groups – has seen a 35 per
cent fall in the consumption of alcopops and a significant
fall in spirits consumption overall.
Coming Up
In the coming week, the International Monetary Fund (IMF)
will release its biannual Global Financial Stability Report
together with updated economic forecasts in its World
Economic Outlook. With the OECD and World Bank having
revised down their forecasts in recent weeks, it would be a
surprise if the IMF did not follow suit.
Here in Australia, we will also receive figures this week
on domestic inflation pressures. Given the falls in demand
both here and abroad, most expect to see inflationary
pressures continue to ease over the near term. The Reserve
Bank will also publish the minutes from its latest board
meeting on Tuesday.
G-20 Finance Ministers’ Meeting
After another hectic week of Budget preparations, I will
be heading to Washington on Friday for an important meeting
of G-20 Finance Ministers and the Spring Meetings of the
IMF. We’ll be ensuring implementation of the important
outcomes of the G-20 Leaders’ Summit held in London earlier
this month, and also identifying key priorities for dealing
with the global recession going forward.
This will be a critical opportunity to discuss the extent
of the global recession with fellow G-20 Finance Ministers,
and get an assessment of just how much the global recession
is impacting on each of their economies. These soundings
will feed into important final decisions for the preparation
of the Budget to be delivered on May 12.
Wayne Swan
Treasurer of Australia