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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

15 November 2009

NO.035

Treasurer's Economic Note

Welcome to this week's note, coming to you from Brisbane after a hectic week-and-a-bit of very useful meetings with my international counterparts and Australian businesses overseas. Landing back in Australia on Friday, it gave me great pleasure to address Australian Workers Union delegates in Bankstown, to recognise the contribution that both workers and employers have made over the past year, coming together to save as many jobs as possible from the ravages of the global recession. I made the same point to the Australian Industry Group last week when I thanked businesses for helping to prevent an even bigger increase in Australia's unemployment rate in the face of the worst global recession in 75 years.

Australian Jobs

While Thursday's labour force figures showed a small up-tick in unemployment in October, they also bear out those continuing efforts of employers and employees to save as many jobs as possible. Australia's unemployment rate rose to 5.8 per cent in October – up 0.1 percentage points from last month. But Australian companies have continued the trend of keeping workers where possible by cutting hours rather than cutting jobs, as shown by a significant increase in part-time employment and a 0.1 per cent decrease in aggregate hours worked.

Thanks to the Government's fiscal stimulus and the Reserve Bank's monetary stimulus, and the efforts of communities all over the country, Australia's unemployment rate remains lower than any other major advanced economy except Japan. My last note reported that unemployment had reached double-digits in the US, rising 0.4 percentage points over the past month alone to 10.2 per cent. Last week we also got updated unemployment numbers out of Canada and the UK, showing that Canadian unemployment increased by 0.2 percentage points to 8.6 per cent in October, and UK unemployment remained largely stable at 7.8 per cent in the three months to September.

While the Australian economy has performed much better than the rest of the world, we shouldn't forget that there are now 670,000 Australians out of work and we still expect further rises in unemployment ahead. Ripping out fiscal stimulus in one hit, rather than continuing with our gradual and careful phasing down, would cost thousands more jobs, ruin many more small businesses, and risk sending the economy backwards before the recovery in private activity has taken hold.

Consumer and Business Confidence

Last week's Westpac-Melbourne Institute Survey of Consumer Sentiment found that consumer confidence fell by 2.5 per cent in November, after five consecutive months of improvement. It's important to keep in mind that consumer confidence is still 44.3 per cent higher than its level in October 2008, prior to the announcement of the first fiscal stimulus package. That compares to a mere 3.9 per cent increase in consumer confidence for the OECD as a whole over the same period.

We also got the results of the NAB Monthly Business Survey for October last week. Business confidence continued its upward climb, consolidating the gains we've seen in recent surveys. However the most striking find of the October survey, as pointed to by NAB Chief Economist Alan Oster, was "the sharp acceleration in actual business outcomes. While confidence has surged in recent times, business conditions had remained significantly below long-term averages. That has now changed." While these improvements in business confidence and conditions are certainly encouraging, they're not translating into a pick-up in business investment. Mr Oster indicated that "at the margin, the index for capital spending went backwards in October and remains at relatively depressed levels" and "business investment plans over the next 12 months … remain relatively subdued – suggesting little, if any, real growth in plant and equipment spending over the next year."

International Monetary Fund

The IMF released the report Recent Global Developments and Prospects on Friday to APEC Finance Ministers, ahead of the APEC Leaders' meeting over the weekend. The IMF makes it clear that the global recovery is not yet self-sustaining and is still dependent on policy support. The report says that "the overarching risk is that the recovery stalls. This could occur because of a premature exit from accommodative monetary and fiscal policies – especially if the policy-induced recovery so far is mistaken for the beginning of a sustained and autonomous recovery in private demand." For these reasons, the IMF again cautioned against the premature withdrawal of fiscal stimulus, stating that "policy support needs to be sustained until recovery is firmly established."

Euro Area and China

We received news on Friday night that Euro area GDP grew by 0.4 per cent in the September quarter – the first time their economy has recorded positive growth since the March quarter last year. Quarterly contractions of 1.8 per cent, 2.5 per cent and 0.2 per cent in the lead-up to this quarter's result mean that Euro area GDP has fallen by 4.1 per cent over the past 12 months. You can read more about the Euro area GDP result and economic outcomes for key Euro countries in this Financial Times article.

Last week's economic data out of China showed continued strength in domestic demand in October. Both industrial production and retail sales grew solidly, and fixed asset investment and loan growth remained at elevated levels. Looking ahead, the strength in domestic demand is expected to continue over coming months, with stimulus-related investment and consumption continuing to boost domestic growth. This brings challenges and opportunities for our own economy.

G20, APEC and Indonesia

Last week I met with my G20 and APEC colleagues to ensure we were doing all we can to achieve a sustained recovery in the global economy and stronger and more sustainable global growth in the future.

At our meeting in St Andrews, Scotland, G20 Finance Ministers committed in our communiqué to "maintain support for the recovery until it is assured." We also launched the Framework for Strong, Sustainable and Balanced Growth, to tackle the imbalances in the global economy that contributed to the global recession. This framework will also help to deliver the global policy reforms needed to lift global growth. My colleagues and I also continued to work on reforms to strengthen the global financial system.

At our meeting in Singapore on Thursday, APEC Finance Ministers agreed in our Joint Ministerial Statement to support the G20 agenda by progressing productivity-boosting reforms that will drive stronger and more sustainable growth in the Asia-Pacific region. To support this critical work and in recognition of the major infrastructure challenges the region faces, I launched a new expert study – Meeting APEC's Post-Crisis Infrastructure Challenge.

Earlier in the week I met with senior Indonesian economic ministers in Jakarta, to build on our already strong economic relationship and discuss key global and regional economic challenges. Following our bilateral meeting, the Indonesian Minister of Finance, Dr Sri Mulyani Indrawati, and I issued a Joint Ministerial Statement outlining the various facets of Australia and Indonesia's economic partnership which continues to go from strength to strength.

Climate Change

With the Copenhagen Summit just a matter of weeks away, the topic of climate change featured prominently in discussions in St Andrews, Singapore and Jakarta. At both the G20 and APEC meetings, Finance Ministers committed "to take action to tackle the threat of climate change and work towards an ambitious outcome in Copenhagen". G20 Finance Ministers also discussed climate change financing options and committed "to take forward further work on climate change finance, to define financing options and institutional arrangements." In our bilateral discussions, Minister Mulyani and I agreed that "climate change poses a significant threat to all countries and a workable solution required efforts from all."

UN Secretary-General Ban Ki-moon last week said that "of course, there will be costs associated with tackling climate change. But these costs pale in comparison with the cost of not taking action. Inaction will mean a weakened economic recovery, a loss of global competitiveness, increased global instability and further human suffering. A global agreement on the other hand will unleash investments that will do more than any single other action could do to jumpstart and sustain global economic recovery." This week's Fact of the Week comes from the International Energy Agency's World Energy Outlook. It calculated that "each year of delay before moving to a more sustainable emissions path would add around $500 billion to the global investment cost of delivering the required energy revolution."

Coming Up

This week we will receive the OECD's Economic Outlook, Australia's average weekly earnings figures for the September quarter, and the minutes of the Reserve Bank Board's last monetary policy meeting.

Births data published by the ABS last week showed that last year Australia registered the highest number of births (296,621) ever recorded in a calendar year and the highest total fertility rate (1.969 births per woman) since 1977. Dealing with stronger population growth is just one of the many challenges our country will encounter over the coming years and decades, which in many ways will be just as difficult as the challenges just passed. So the job's not finished – in many ways it's just beginning. We're working just as hard on the post-crisis economy as we did on surviving the crisis itself, to ensure the national unity and effort that got us through the crisis is converted into long-term improvements to our economy.

Wayne Swan
Treasurer of Australia
Sunday 15 November 2009

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www.economicstimulusplan.gov.au