SUBJECTS: Growth forecast, G20, Chinese fiscal stimulus, interest rates, unemployment
KAREN TSO:
This weekend world leaders will converge on Washington for the G20 Summit aimed at resolving the financial crisis, Prime Minister Kevin Rudd and Treasurer Wayne Swan will be there, but just what agenda will they be pushing at the summit. A short time ago I spoke with Assistant Treasurer Chris Bowen and started by asking about the growth forecast for Australia.
CHRIS BOWEN:
Well, we are seeing forecasts across the board being downgraded, both in Australia and around the world, of course the Treasury released its MYEFO forecasts recently which are broadly consistent with the Reserve Bank's forecast; we've seen the IMF and world bank reduce their world forecast and that will of course flow through to Australia, so yes, we are seeing that across the board and we are seeing that in the real economy.
TSO:
How confident are you that Australia can avoid a recession given there are predictions that the U.S, Europe and Japan will simultaneously fall into recession for the first time in sixty years?
BOWEN:
Well you're quite right. We are seeing recessions across the board, almost every nation in the G8 is expected to be in recession. However, Australia is particularly well placed to get through this and when you look at the forecasts, whether it be Reserve Bank or the Treasury or the IMF. They are all predicting positive growth and I saw the NAB predicting positive growth less then what the Government is predicting but still positive growth. So we are confident that we can get through this and we'll certainly continue to be responding flexibly and decisively as we need to to ensure robust growth going forward.
TSO:
There is a crisis of confidence around the world and it seems like Australia's is not emuine with business confidence falling to a record low yesterday. As a government how do you address that?
BOWEN:
We need to strike the balance here, we need to be up front and honest with people about the challenges facing Australia in this international crisis but also to consistently, confidently point out how well Australia is placed to get through this; that the fundamentals are sound and that's what we are doing.
What we are seeing is hourly waves of bad news from around the world. The media cycle now is a lot different to previous down turns people have a lot more access to international news and a lot more current updates and we are seeing hourly updates about how the world economy is going and that of course will have an impact on Australian confidence. As a government it's our responsibility, as I say, to be up front and honest but also to point out the upsides of the strong fundamentals of the Australian economy.
TSO:
You're using fiscal policy to try and simulate the economy, $10 billion pumped into the economy, that's left you with a fairly skinny surplus. Does that mean you think the job is now up to the RBA to lower interest rates and use monetary policy to support your fiscal policy?
BOWEN:
Well, of course, the Reserve Bank is independent and they'll make their own decisions. We do have now a fiscal policy and monitory policy pulling in the same direction. The Reserve Bank has indicated through their statement on monetary policy that the situation continues to be concerning. They'll make the judgements as they see fit there is of course a considerable buffer there interest rates in Australia are still high compared to other nations so there is still room for the reserve bank to move but its entirely a matter for them.
TSO:
Well predictions are for another 75 basis point rate cut by Christmas and potentially another series more of rate cuts taking the level back to 3.75 per cent by next year. Given the softness you're seeing right around the economy particularly in the housing sector would this be welcome for many home owners and businesses?
BOWEN:
Well, of course any relief from cost of living pressures and difficult financial circumstances would be welcome from the government and from the Australian people, but as I say the Reserve Bank in Australia is independent; they fiercely guard their indepence and we fiercely guard it for them, so they'll make the decisions as they see fit.
TSO:
I want to ask you about the stimulus package we saw from China this week, $600 billion, now we know that are trading partners are showing signs of weakness. How far do you think this will go to helping the Australian economy?
BOWEN:
I think this is a very substantial package and it's a very welcome package. What's particularly welcome when you look at this package is the emphasis on infrastructure housing and other sorts of infrastructure which could be expected to flow through of course to Australian commodity exports.
We had seen downgrading of growth predictions in China and of course that had some issues with forward order books [inaudible] resources companies which are used to very strong growth so this very substantial stimulus package 7 per cent of GDP in each year will be very welcome from Australia's point of view and will of course have some flow through impacts to Australia as well to the rest of the world.
TSO:
Treasurer Wayne Swan is talking to the G20 later this week, what position do you think he will put to other world leaders?
BOWEN:
There will be a range of matters discussed by the G20 and we'll be continuing to pursue the agenda for reform that the Prime Minister outlined at the UN general assembly in relation to governance issues and regulatory issues we'll also continue to let other nations know about our approach our stimulatory approach for which there is quite a degree of interest around the world, in our experience, and we'll continue to argue those points.
TSO:
Jobless rates now are climbing right around the world and Australia's no different. There are predictions that we could see eight or nine per cent here. Its' not reflected in our official numbers just yet, but that is seen as a lagging indicator. Are we heading into an era where every Australian who's looking for a job won't necessarily be able to get one?
BOWEN:
Well our prediction, our forecast for unemployment is that it will have a five in front of it. That's the treasury's prediction; their best estimate based on the current circumstances. We'll continue, as I say, to respond flexibly to ensure robust growth which of course means unemployment as low as we can get it. The Prime Minister has indicated at this stage of the cycle, that's our priority as it should be. We'll continue to do so. We do have historically, very low unemployment in Australia as many nations around the world have experienced; we are seeing that come off around the world and we're seeing that in Australia as well but we'll do what we can to keep it as low as we can.