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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

16 August 2009


Treasurer's Economic Note

Welcome to the latest edition of my economic note. One of the best parts of my job is getting to meet as many of the 1.9 million small business owners in Australia as I can. While Parliament took a break, I got a chance to get out and about to meet small business owners from places like Elizabeth in South Australia, Beenleigh in Queensland, as well as Wollongong, Grafton and Lismore in New South Wales. And just recently I had a great chat with a range of small business owners from south Sydney and their local MP Tony Burke. The message I got loud and clear from these innovative and hard-working Australians was that our stimulus packages have ensured small businesses still have customers coming through their doors.

Small businesses play a really important role in driving our economy and creating jobs, making up 39 per cent of the private sector's contribution to GDP and employing over 5 million people – half of all private sector employment. The Rudd Government will continue to move around the nation, meeting as many business leaders – big and small – as we can, as we work hard to ensure Australia is well placed to meet the challenges of this global recession and take full advantage of the recovery.

Overseas Data

Last week's labour force data from abroad confirmed the global recession is continuing to destroy jobs around the world. The UK's unemployment rate rose by 0.7 of a percentage point in the three months to June, to 7.8 per cent. Across the Atlantic, Canada experienced a bigger than expected fall in employment in July, with unemployment currently standing at 8.6 per cent. These figures are a sobering reminder of why it is so important that our economic stimulus continues to provide vital support for Australian jobs.

In the US, encouraging comments from the Federal Reserve on Wednesday that US economic activity is levelling out, were followed with the disappointing news on Thursday that retail sales fell by 0.1 per cent in July, well below the consensus estimate of a 0.8 per cent rise. You can read more about the US retail sales result and economic outlook in this Reuters article.

Business Confidence

This week's Fact of the Week comes from the NAB Monthly Business Survey, which found business confidence rose in July to its strongest outcome since August 2007. Business conditions also improved slightly in July, to their strongest outcome since May last year. NAB Chief Economist Alan Oster commented that "confidence has now almost returned to long-term average levels with the improvement being broadly based." He said "it was notable that particularly strong gains were made in manufacturing and construction. These sectors have previously lagged and are now benefitting from the infrastructure phase of the Government's stimulus package. Wholesale confidence has also improved significantly on the back of the improved retail outcomes". Mr Oster noted that "actual business outcomes – as measured by business conditions – have, importantly, maintained the sharp improvement in June and, indeed, have marginally improved further." However, he also cautioned that "maintaining the current momentum will become increasingly more difficult."

The Dun & Bradstreet National Business Expectations Survey reported that sales and profit expectations for the upcoming December quarter experienced their biggest one-quarter increase since the survey began in 1988. Expectations for employment, inventories and capital investment also improved. Dun & Bradstreet CEO Christine Christian said that "the improvement in key indices such as employment and sales expectations is a sign that the economic stimulus has been successful in encouraging household spending." Notwithstanding the encouraging results, Ms Christian issued the warning that "the road to recovery will continue to be challenging".

Consumer Confidence

The results of the Westpac-Melbourne Institute Survey of Consumer Sentiment released last week showed consumer sentiment rose by 3.7 per cent in August. Westpac Senior Economist Matthew Hassan said the rise in consumer sentiment in August "extends what had already been an extraordinary rally in confidence over the previous two months. The Index is now up 27.8 per cent since May, the biggest three month gain since the survey began in 1975, and by a wide margin." He added that this surge "has seen sentiment rise back into solidly optimistic territory. The Index is now up a staggering 43.6 per cent from its 2008 low, to its highest level in nearly two years. Remarkably, sentiment is now just 1.6 per cent below its 2007 average."

Last month Westpac Chief Economist Bill Evans commented that "the success which the Government's stimulus package has achieved in boosting confidence will be a lesson to other governments … The key is not the direct impact of increasing spending capacity … The key is to restore confidence". It is this impact on confidence – both consumer and business – which has made our stimulus greater than the sum of its parts.

I don't think you need a PhD in economics to know what would happen to confidence in Australia if the Government were to withdraw the stimulus that has been supporting businesses and jobs in the midst of the global recession. And you don't need an MBA to know that businesses can't move forward with confidence and certainty and invest in the low-pollution jobs and economy of the future until we get the CPRS legislation through the Parliament.

Coming Up

This week we will receive data on Japan's GDP for the June quarter and Australia's international merchandise imports for July. In addition, the Reserve Bank will release the minutes from their last board meeting, and their monthly publication, the Bulletin.

As I said in my ministerial statement to Parliament last week, there is now substantial evidence that the Government's measures to soothe financial markets and support the economy are working, helping to steer Australia through the most difficult period in the global economy since the Great Depression. To wind back our stimulus – when it has generated such positive signs in our economy and led to recent upward revisions to forecasts by the IMF and RBA – would not only be pulling the rug out from under Australia's recovery, but would also be a direct attack on all those small businesses and tradespeople I have been meeting, who are relying so heavily on stimulus to support their jobs and those of their employees.

Wayne Swan
Treasurer of Australia
Sunday 16 August 2009