Monday, 21 December 2009
Today's economic note comes to you after a busy weekend. I've
just got back from a press conference welcoming a couple of pieces
of fantastic non-economic news, with the search team trawling the
ocean off south-east Queensland locating the wreck of the Australian
hospital ship Centaur, and the way now being cleared for Mary
MacKillop to become Australia's first saint. I also discussed the
outcomes of the UN
Climate Change Conference in Copenhagen.
Copenhagen
Prime
Minister Kevin Rudd described the Copenhagen Accord as "a
significant global agreement on climate change action", as "it is
the first global agreement on climate change action between rich
countries and poor countries." For the first time, rich countries
and poor countries agreed that we should keep our temperature
increases within 2 degrees Celsius, and reached agreement on actions
to reduce greenhouse gas emissions, international mechanisms to
verify actions taken, and the finance necessary to support the
mitigation and adaptation efforts of the most vulnerable countries
in the world.
US President Barack Obama said this was "a meaningful and
unprecedented breakthrough", as "for the first time in history all
major economies have come together to accept their responsibility to
take action to confront the threat of climate change."
The Prime Minister made it clear that "much more work is still to
be done, and we'll be putting our shoulder to the wheel to make sure
that work is done." President Obama said that "going forward, we're
going to have to build on the momentum that we've established here
in Copenhagen to ensure that international action to significantly
reduce emissions is sustained and sufficient over time. We've come a
long way, but we have much further to go."
National Accounts
Wednesday's
National Accounts showed that the Australian economy continued
to grow in the September quarter against a backdrop of still
challenging global conditions. The Fact of the Week is that GDP rose
by 0.2 per cent in the September quarter, to be 0.5 per cent higher
through the year. Once again the Government's fiscal stimulus was
vital in preventing the economy going backwards, with Treasury
estimating that our stimulus measures added 0.4 percentage points to
GDP growth in the quarter. That means that without our fiscal
stimulus, the Australian economy would have contracted not only in
the December quarter of last year, but also in the March, June and
September quarters of this year – shrinking in total by 2 per cent
over the past year. Instead, thanks to stimulus, the September
quarter National Accounts mark the beginning of Australia's 19th
consecutive year of economic expansion – a feat matched by no other
advanced economy over this current period.
While economic conditions are improving, the National Account
figures provide a cautionary reminder that there's still some way to
go before economic growth becomes self-sustaining. Private business
investment fell by 2.5 per cent in the quarter, subtracting 0.5
percentage points from growth. This fall would have been even bigger
if not for the increase in private school construction associated
with our
Building the Education Revolution program, with Treasury
estimates indicating non-residential building investment would have
fallen by 8.8 per cent instead of 6 per cent without this impact.
The Government's stimulus measures are helping to offset the
weakness in private investment, keeping our economy growing against
the odds. Public investment rose by 6.2 per cent in the quarter,
contributing 0.3 percentage points to growth. Much of this increase
came from our infrastructure stimulus, which is not only filling a
temporary hole in private investment but also putting in place
long-term improvements to our economic capacity. Household
consumption spending rose by 0.7 per cent, contributing 0.4
percentage points to growth. This increase was underpinned by solid
levels of consumer confidence, the continued resilience of the
labour market, and the continuing effects of our cash stimulus
payments earlier in the year. Dwelling investment rose for the first
time in a year by 5.9 per cent, reflecting the effects of
historically low interest rates and support from our
First Home Owners Boost and
Energy Efficient Homes Package. Treasury estimates that this
package alone accounted for more than half of the 7.6 per cent
increase in spending on the alterations and additions part of
dwelling investment, contributing 0.1 of a percentage point to
growth.
The National Account figures give us more reasons to be confident
about the future, but they are definitely no cause for complacency.
Over the past year we've seen the biggest fall in export prices on
record (-19.5 per cent), the second biggest fall in business profits
on record (-16.3 per cent), the weakest growth in wages and salaries
since the early 1990s recession (0.3 per cent), and the biggest fall
in nominal GDP in at least 50 years (-2.5 per cent).
The gradual phased withdrawal of stimulus remains appropriate as
the global recession continues to wash through the Australian
economy. The impact of stimulus on growth peaked in the June quarter
and is already tapering away. But it is still performing a very
important role in Australia's economic recovery – giving businesses
the confidence to keep trading, keep producing, and to keep staff in
jobs during the global downturn. People I talk to in the community –
small business owners, tradies, mums and dads – point to the
confidence and certainty that comes from knowing there is a pipeline
of work available. That pipeline of work can make all the difference
when it comes to employers making decisions about whether to keep
staff or put more on, and workers having the confidence to buy those
goods and services they want, and not just those they need.
JJust as fiscal and monetary stimulus have been working hand in
hand to support the economy and jobs during the worst of the
downturn, both are gradually being phased down as the economy
strengthens. The
minutes of the Reserve Bank Board's last monetary policy
meeting, which came out on Tuesday, highlight that as the economic
outlook has begun to improve, monetary policy has been adjusted from
its 50-year emergency lows.
The Year in Review
As the year winds up, I think it's worth reflecting on the
scenario we faced 12 months ago. This time last year, the global
financial system was literally melting down, confidence was
shattered and global trade was in free fall, advanced economies were
falling like dominoes into recession, the Reserve Bank had just cut
rates by 300 basis points in the space of four months, and our first
cash stimulus payments were rolling out. We were confronting the end
of Australia's long period of uninterrupted economic growth, and up
to a million Australians out of work. But now, 12 months down the
track, a combination of economic stimulus and community effort has
seen Australia fight off the worst global downturn in 75 years.
We've avoided a recession – and some of the destruction that goes
with it – and are now half-way through our 19th consecutive year of
growth. When the Government came to office, Australia and the US had
virtually the same unemployment rates. Two years on, Australia's
unemployment rate now stands at 5.7 per cent while the US
unemployment rate has hit double digits at 10 per cent.
It should remain a source of pride to all Australians that we
have achieved what virtually no other country could over the past
year. Employers and employees deserve credit for doing the right
thing by each other, and the nation, by cutting hours instead of
cutting jobs and preventing an even bigger increase in unemployment.
I'd also like to acknowledge the dedicated efforts of the talented
Treasury staff over the past year and a bit. Their work has helped
save many Australians and their families from the indignity and
hardship of unemployment, and helped prevent the social carnage and
community dislocation that usually accompanies recession. I know
they will continue to make a stellar contribution going forward, as
the Government focuses on ensuring the national unity and effort
that got us through the crisis in 2009 is converted into long-term
improvements to our economy in 2010.
Wayne Swan
Treasurer of Australia