The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

4 November 2012

Treasurer's economic note

Policymakers have always been focused on nutting out where their economy is and where it might be headed. We study changes in the employment market, business activity, retail trade and a range of other domestic indicators when making decisions. Recently though, we've all had to lift our gaze. Today nearly as much time has to be spent looking at what's happening outside a domestic economy as what's happening inside it. As the past few years have shown, events can quickly spill across borders. Flows of capital can surge or dry up almost overnight. Business and consumer confidence in one place can sway sentiment in another. And a downturn or recovery in one economy can be matched or amplified elsewhere. In such an interconnected world, policymakers need to be constantly alive to the risks and opportunities beyond their own shores.

A fragile recovery

This weekend's meetings of G20 finance ministers in Mexico  come at an important time in assessing international conditions and how they may affect our economy. From my initial meetings, it's clear most of my G20 colleagues view the global recovery as fragile. Recent action by central banks in Europe, the U.S. and Japan has been a step in the right direction. It's critical that leaders of many major economies now get on with the necessary structural reforms needed to underpin growth. In Europe, governments must continue down the long road towards closer banking, fiscal and political ties. More Europe, not less remains the most effective way to deliver a lasting resolution to the region's sovereign debt crisis.

Meanwhile in the U.S., despite some encouraging data in recent weeks, the economic recovery is still shaky. The most pressing issue for whoever wins this week's presidential election will be working with Congress to avert the "fiscal cliff" - the scheduled tax increases and severe spending cuts that could cripple the world's biggest economy. While avoiding the fiscal cliff is critical to supporting activity in the months ahead, the U.S. will also need to outline a strategy to get its budget back on a sustainable footing to support economic growth over the longer term. I look forward to getting a first-hand assessment of these issues when I travel to Washington this week for meetings with my U.S. counterpart Treasury Secretary Tim Geithner, Federal Reserve Chair Ben Bernanke, IMF Managing Director Christine Lagarde and the Director of the Congressional Budget Office, Doug Elmendorf.

A focus on jobs

Regardless of the specific domestic challenges we face, all policymakers need to remember that our ultimate objective is to provide more people with the opportunity of work. A decent job with fair pay and conditions is not only essential for reducing poverty and increasing living standards, but also for ensuring long-term, sustainable growth. During the week, we received a stark reminder of the extent of the world's unemployment challenge with the jobless rate in the euro area  hitting a record high of 11.6 per cent. There are now about 18.5 million men and women in Europe looking for work - more than Australia's entire adult population. Perhaps most troubling is the fact that youth unemployment is around 50 per cent in countries like Greece and Spain. Millions of young people are being locked out of the job market and denied the opportunity to learn valuable skills. For these nations, there is a very real risk that a lost generation is being created.

The International Labour Organization  estimates the ranks of the world's unemployed have increased by around 30 million people since the global financial crisis pushing global unemployment to 200 million. It warns that a further seven million could lose their jobs in 2013. The need to keep employment outcomes at the front and centre of the global economic agenda is something I'll be advocating this weekend and I'll continue to advocate as Australia prepares to host the G20 in 2014. Coming at a time of considerable political and economic uncertainty around the world, it's important that the meetings this weekend consolidate on recent progress so that we are building a broader, stronger and more stable platform for growth and jobs. We need the G20 to be not just an effective manager of crises as they occur - as we've seen in recent years - but also a vehicle which can help deliver a more enduring upwards trajectory for the global economy. Australia's views on this topic carry plenty of weight on the international stage because we have a proven track record over the past five years with an economy that has grown 11 per cent and the creation of more than three quarters of a million jobs.

Hosting the G20 will give Australia an even greater role in shaping the international economic agenda , and help showcase our nation's economic and business strengths to the world. It's particularly pleasing that major G20 meetings will be held in both Brisbane and Cairns given the setbacks caused by last year's floods and cyclone. I know many Australians were vividly reminded of those disasters during the week by the images of devastation wrought by superstorm Sandy in the U.S. Our thoughts are with those who have suffered loss and with the communities as they begin the long process of rebuilding and recovery. While the focus now is on the human toll, we also know that the financial impact of such disasters can be substantial. Preliminary estimates suggest the storm may have caused between US$40 billion and US$60 billion worth of damage - that's between 0.3 per cent and 0.4 per cent of the annualised size of the U.S. economy. In Australia, we understand all too well what the economic impacts of a major natural disaster can be. The 2011 disasters caused more than $12 billion in damage - around 0.9 per cent of the annualised size of our economy.

The Asian Century

There is no doubt the frail global conditions are weighing on our region and our economy. This was clear with the almost $22 billion write-down in government revenues made between the Budget and last month's mid-year review. While growth in Asia has moderated, the long-term prospects for our region remain bright. That's why it was great to see the community discussion that was sparked during the week by the release of the Australia in the Asian Century White Paper . There was particular recognition of the importance of education in making the most of the opportunities that lie ahead. A more educated and skilled workforce will be critical to building our nation's productivity, promoting innovation and opening our minds to the possibilities of our region.

Australia faces the current global challenges, as well as the longer-term opportunities presented by the Asian Century, from a position of strength. We have an enviable combination of solid growth, low unemployment, contained inflation and low debt, with the budget returning to surplus ahead of every major advanced economy. The problems we see in so many parts of the developed world only highlight the need for Australia to continue our nation's long record of reform. While other nations struggle to make up the economic output and jobs lost during the GFC, we can look to the future with confidence. We'll continue to find room to fund our priorities in areas like education and disability reform to build a stronger, fairer economy.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia