Monday, 29 June 2009
The latest edition of my economic note comes to you from Perth, where I
spent most of the weekend talking to business people and locals. Coming
across to this side of the country reminds me a lot of my home state of
Queensland, with both States really feeling the effects of the unwinding of
the commodities boom and the resulting collapse in commodity prices. As
Federal Treasurer I know how brutal it has been, with a $210 billion
write-down in federal government revenues. However I also know that were it
not for the Government’s substantial economic stimulus, the unwinding of the
commodities boom and the global recession would have had a much greater
impact on jobs around the country. This was reinforced by three
international reports that were all released last week.
World Bank Report
The
World Bank’s Global Development Finance report illustrates the
difficult year ahead for the global economy, with the World Bank
further downgrading its global economic outlook. It now expects
global output to shrink by 1.7 per cent in 2009, with the US
expected to contract by 3 per cent, the Euro area by 4.5 per cent,
and Japan by a massive 6.8 per cent.
The World Bank report underscores the importance of policy action
around the world. It states that the “extraordinary policy responses
by governments around the world have helped save the global
financial system from systemic collapse.” It goes on to say that
these actions, combined with fiscal stimulus, will “help reduce the
depth and prospective length of the global recession.”
OECD Report
The OECD’s
Economic Outlook confirms that Australia has the best performing
economy in the OECD, with lower debt and lower deficits than any of
the major advanced economies. It forecasts the Australian economy
will contract by 0.4 per cent in 2009, which is the mildest
contraction of any of the 30 OECD economies, and one-tenth the size
of the 4.1 per cent contraction forecast for the OECD as a whole.
Acting Head of the OECD’s Economics Department Jorgen Elmeskov
said that even with OECD activity suffering its deepest decline in
post-war history, “it could have been worse. Thanks to a strong
economic policy effort an even darker scenario seems to have been
avoided. But this is no reason for complacency; the need for
determined policy action remains across a wide field of policies.”
The OECD report points to the Government’s nation building
investments as a key support for the Australian economy, noting “The
infrastructure development programme announced in the 2009-10 Budget
is welcome and should strengthen fiscal policy impact.” It notes
that in the current environment, government budgets have provided “a
very important cushion for economic activity in the downturn”.
Despite Australia’s stronger outlook, the OECD report notes that
we will not be immune from the impacts of the global recession. It
forecasts the unemployment rate in Australia will rise to 7.9 per
cent by the end of 2010. Whilst too high, this is considerably lower
than the 9.9 per cent unemployment rate forecast for the OECD as a
whole.
IMF Report
The IMF’s
Article IV Consultation concluding statement strongly endorses
the Government’s economic stimulus, stating “We welcome the quick
implementation of targeted and temporary fiscal stimulus. The
stimulus provides a sizeable boost to domestic demand in 2009 and
2010 that will cushion the impact of the global recession.” It
commends our three-stage stimulus strategy, when it says “The
transfers to households had an immediate impact on activity that
helped underpin confidence. The increase in public investment will
continue to support activity in the near term, while addressing
infrastructure shortfalls.”
The IMF report also praises the Government and Reserve Bank’s
actions to strengthen the financial sector. It says our bank deposit
guarantee has “bolstered confidence in the financial system”, and
our wholesale funding guarantee has “allowed for continued access to
international capital markets.”
The IMF report states that projected budget deficits are
“appropriate in current circumstances”, and that Commonwealth
government debt is projected to remain low compared with other
advanced economies. It commends the Government’s commitment to
return the Budget to surplus, noting “Few other advanced countries
have adopted such a clear commitment.” This is a big tick for our
strategy.
Domestic Data
This week’s Fact of the Week is that
more than 97,000 Australians had taken up the
First Home Owners Boost by the end of May. The month of May saw
the biggest take-up so far, with 19,607 first home buyers using the
Boost to enter the housing market. Given the success of this
initiative in supporting housing activity, the Budget extended the
First Home Owners Boost for six months to 31 December 2009, with the
Boost reduced by half for the last three months of the extension
period.
As we navigate these difficult global conditions, confidence is
absolutely vital. That’s why we welcome the results of the
Sensis Consumer Report, which found that consumer confidence
rose by 18 per cent in the three months to May, the largest
quarterly rise on record.
However other data released last week confirmed that we face a
rocky road ahead, with the unwinding of the commodities boom to have
a devastating impact on export earnings.
Australian commodities data showed that earnings from
Australia’s commodity exports are expected to fall by 18.1 per cent
in 2009-10, stripping $35 billion out of the economy next financial
year. This will be driven by a sharp decline in minerals and energy
export earnings, which are expected to fall by 22.4 per cent.
Coming Up
In the coming week, the US will release their unemployment data
for June, while here at home we will receive retail trade figures,
building approvals data, and the RBA financial aggregates.
It was encouraging to see that Government efforts to stimulate
the economy are working to position Australia as one of the best
performing economies in the developed world, but there is no room
for complacency when Australian jobs are at risk. It’s often
difficult to talk about recovery when we know that Australians still
risk losing their jobs to the ravages of the global recession.
That’s why the Government’s Nation Building for Recovery plan is all
about supporting Australian jobs now, by building the infrastructure
we need to take maximum advantage of the global recovery when it
comes.
Wayne Swan
Treasurer of Australia