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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

26 July 2009


Treasurer's Economic Note

Welcome to the latest edition of my economic note. We have seen a few bright spots during the past week, providing more proof that the Government’s stimulus package is doing its job.  But we received a sombre reminder on Friday night of just how difficult the global economic environment remains. The UK economy recorded its biggest annual contraction since records began in 1955. We also saw the ongoing impact the global recession is having on demand in our economy, with the June quarter recording the lowest annual inflation rate for 10 years.  These numbers underscore the difficult challenges we face, which the Prime Minister discussed in his essay on the road to recovery published yesterday.

Still facing a difficult global environment

Despite some recent positive signs in the global economy, the full extent of the ongoing global recession was brought home with the release of the latest UK economic growth figures.

The UK economy contracted by a greater than expected 0.8 per cent in the June quarter.  Market economists had been expecting a more modest contraction of 0.3 per cent. This was the fifth straight quarter in which the UK economy has contracted, and follows declines in output of 2.4 per cent in the March quarter this year, and 1.8 per cent in the December quarter. The annual output contraction of 5.6 per cent, is the biggest decline since quarterly records began in 1955.

These figures illustrate why it is far too early to be declaring victory over the global recession. While global policy actions have helped to restore confidence and limit the decline in global output, we know that the consequences of this global recession will be felt for some time to come. That’s why it is so important that we maintain our stimulus plans to support the Australian economy, businesses and jobs.

We also continued to see the direct impacts of the global recession on our economy.

Last week’s DEEWR Skilled Vacancy Report pointed to further rises in unemployment in the period ahead as the impacts of the global recession continue to wash through our economy. Total skilled job vacancies falling fell for the 20th consecutive month and are 60 per cent lower than last year.

The CPI outcome for the June quarter showed that inflationary pressures continued to lessen due to the global recession and the impacts it is having on the domestic economy. The CPI rose by 0.5 per cent in the June quarter 2009 to be 1.5 per cent higher through the year. This is the lowest annual headline inflation outcome in 10 years.

Some positive signs at home but not out of the woods yet

At home, it has been encouraging to see mounting evidence recently that the Government’s stimulus is working to support jobs and economic activity during the global recession. The Access Economics Business Outlook report, released last week further demonstrated that our economy is weathering the global storm better than just about any other advanced economy.  Access noted the Government’s stimulus had kept our economy growing during the most dangerous period in the global economy in sixty years. Access Economics has also revised up its growth forecasts for Australia to 0.4 per cent in 2009-10, having previously expected the Australian economy to contract.

The report also demonstrates that Australia still faces some very strong global headwinds, with rising unemployment, big falls in private investment still expected, and declines in export prices which Access estimate will strip $50 billion from national income. Access has upgraded its unemployment outlook, but is still expecting unemployment to rise to 7½ per cent by late 2010, which would mean another 200,000 Australians without a job. Peter Martin’s article in The Age provides a good analysis of the Access Economics report.

These huge challenges that still lie ahead underscore the importance of fully implementing the three stages of our economic stimulus strategy to support business and help keep more Australians in work.

The new motor vehicle sales figures released last week further demonstrated the support that stimulus is providing, through the Small Business and General Business Tax Break. Motor vehicle rose 5.7 per cent in June, the third straight monthly rise and the strongest increase since October 2004. 

The stimulus package has helped to make sure that the Australian economy remains one of the strongest in the advanced world. The next stages of the stimulus package, which are continuing to roll out over this year and the next, are vital to providing ongoing support to the economy. These stages include crucial infrastructure investment in schools, roads, rail and ports.

Infrastructure investment is supporting jobs now, while putting in place the critical infrastructure we need for the future.  That’s why I was please to announce on Friday the formal commencement of the Guarantee of State and Territory Borrowing.

This Guarantee is critical to ensuring that State and Territory Governments maintain their nation building infrastructure investment. Pulling back on critical nation building infrastructure investment now would hinder a recovery from the global recession, resulting in slower growth and higher unemployment into the future.

Coming Up

This week we will see the NAB Quarterly Business Survey, data releases for rental, residential property prices, building approvals, and new home sales as well as the RBA financial aggregates.  Internationally, we will see the unemployment rates for the euro area and Japan, plus inflation numbers for Japan and GDP for the US. These data releases will provide more insights into the challenges we will face on the road ahead.  

While the policy actions taken by governments around the world have helped slow the sharp declines in global activity, we know that we are not out of the woods yet. The global recession has had a devastating effect on economies right around the world and recovery will take time. The recovery will be a bumpy road with plenty of ups and downs.  And unfortunately the aftershocks of the crisis are still being felt by Australian workers and our businesses. But we remain confident that our three-stage stimulus strategy is working to support jobs and position the Australian economy as one of the strongest in the world.

Wayne Swan
Treasurer of Australia
Sunday 26 July 2009