JOSH FRYDENBERG: Less than 100 days ago our nation was on the edge of an economic cliff.
The number of coronavirus cases was increasing by more than 20 per cent per day. Treasury were contemplating a collapse in GDP of more than 20 per cent in the June quarter.
This was an economist’s version of Armageddon.
In response to this one-in-a-hundred year global event we put in place a series of health measures that have hit the economy hard.
These were tough decisions but these were decisions we had to take.
Saving lives was our priority and that has been the result.
While tragically 102 people have died in Australia as a result of the coronavirus, it stands in stark contrast to the United States, where more than 100,000 people have lost their lives, and the United Kingdom, where around 40,000 people have lost their lives.
To illustrate just how bad we thought it could get, we purchased 5,500 ventilators but thankfully today there is just one coronavirus patient in Australia on a ventilator, demonstrating the real progress we have made.
Notwithstanding the success of the health measures we have put in place they have come at a significant economic cost and this is reflected in today’s National Accounts.
It is important to remember that it was quite early on in the March quarter that the health restrictions were starting to be implemented.
Australia had its first confirmed coronavirus case confirmed on January 25th and a week later on the 1st of February Australia became one of the first countries to act bringing into effect a travel ban on China.
It was soon extended to Iran, South Korea and Italy and then to all non-residents on 20 March.
Social distancing restrictions were also progressively implemented over the quarter.
On the 15 March outdoor gatherings were limited to 500, on 18 March indoor gatherings were limited to 100, on 20 March the four square meter rule came into place and on 24 March, overseas travel was banned and limits placed on the size of gatherings at weddings and funerals.
It was in this quarter, the March quarter, that consumer and business confidence fell to its lowest level on record and the ASX 200 lost a third of its value, and on the 16th March saw its biggest daily fall on record at 9.7 per cent.
When combined with the ongoing drought, which saw farm GDP fall by 2.4 per cent in the quarter and the devastating impact of the fires raging across many states, one looks back on the March quarter and there wasn’t a lot of good news.
Seen in this context the fact that the Australian economy only contracted by 0.3 per cent shows the Australian economy’s remarkable resilience.
Indeed, Australia’s performance in the March quarter compares very well to that seen in other nations with negative growth in China of 9.8 per cent, France 5.3 per cent, Germany 2.2 per cent, United Kingdom 2.0 per cent and the United States 1.3 per cent.
With the 40 million jobless claims in America in the last ten weeks, the economic situation in that country and across the globe is quite severe indeed.
In Australia’s remarkable story of almost twenty-nine consecutive years of economic growth, this is only the fourth negative quarter in that time.
While growth was up 1.4 per cent through the year, the March quarter contracted by 0.3 per cent broadly in line with market expectations.
While Government spending and net exports contributed to growth in the quarter it was more than offset by the contraction caused by falls in consumption, investment and inventories.
While fear of a lockdown saw panic buying of food and household items, total consumption still fell by 1.1 per cent in the quarter, this is the largest quarterly decline in consumption in thirty-four years with ten of the seventeen consumption categories falling.
Spending on transport services and hotels, cafes and restaurants experienced their largest falls on record.
In the words of the Australian Bureau of Statistics, the sharp reduction in spending on services was due to “the introduction of social distancing restrictions and travel bans.”
The household saving ratio increased to 5.5 per cent in the quarter as household income increased but household spending fell.
The health related restrictions also significantly affected our tourism and international education industries.
Net exports contributed 0.5 percentage points to growth in the March quarter.
Services trade was heavily impacted by travel bans on both inbound and outbound travel. After eight consecutive quarters of growth, services exports fell by 12.8 per cent, while services imports also fell sharply, by 13.6 per cent.
Australia recorded its fourth consecutive current account surplus of $8.4 billion in the March quarter, the longest consecutive period of current account surpluses since the 1970s. Exports continue to be supported by Free Trade Agreements which now cover around 70 per cent of our two‑way trading relationships, compared to just 26 per cent when we came to Government.
New business investment fell by 0.8 per cent in the quarter with a decline in new machinery and equipment and new building more than offsetting an increase in new engineering construction.
Mining investment rose by 3.6 per cent in the quarter, the second consecutive quarterly rise with only a few mining projects experiencing delayed final investment decisions as a result of uncertainty caused by the coronavirus outbreak.
The ABS CAPEX survey released last week showed that despite investment intentions in the mining sector being downgraded, they remain positive for 2020-21.
Inventories detracted 0.2 percentage points from GDP growth in the quarter. Inventories in retail, wholesale and manufacturing fell as households bought goods at a faster rate than they could be manufactured. These falls were partially offset by a rise in public authorities inventories, including health inventories due to a build-up in the National Medical Stockpile.
The economy continues to be supported by new public final demand, reflecting spending across all levels of Government, which rose by 1.4 per cent in the quarter to be 5.3 per cent higher through the year.
Turning to the income side, compensation of employees (COE), which measures the national wage and salary bill, was up 0.5 per cent in the March quarter to be 4.2 per cent higher through the year.
The increase in COE was driven by an increase in employment with 39,000 jobs created over the quarter.
With restrictions easing, we are seeing some encouraging signs across the economy.
As the RBA Governor said last week in evidence to the Senate Committee on COVID-19 “with the national health outcomes better than earlier feared, it’s entirely possible that the economic downturn will not be as severe as earlier thought.”
The ASX200 is now down just over 19 per cent from its record high on 20 February and more than 32 per cent higher from the recent low on 23 March.
The Australian dollar has now more than fully recovered the 11 cent fall that occurred in less than two weeks from above US 66 cents on 9 March to a low of US 55 cents on 19 March, levels previously seen in October 2002.
Consumer confidence has increased for nine consecutive weeks since the announcement of JobKeeper and has recovered around 95 per cent of the fall from mid-March.
Business confidence rose in April to reverse around one-third of its record fall in March. However, it remains well below its 10-year average.
With restrictions starting to lift in accordance with the decisions on National Cabinet it will be paramount to build confidence and to keep the momentum to consolidate these gains.
Today’s National Accounts show once again that in the face of a one-in-a-hundred year global pandemic the Australian economy has been remarkably resilient.
We entered this economic crisis and this health crisis from a position of economic strength.
Growth was rising, the unemployment rate had fallen to 5.1 per cent in February, 1.5 million new jobs had been created and the Budget was back in balance for the first time in eleven years.
The strength gave us the fiscal firepower to respond as we have done.
Around $260 billion in economic support, or the equivalent of more than 13 per cent of GDP.
We are not through this crisis as yet.
And there will be some difficult days ahead.
But our nation, working across geographical and political boundaries, has made great progress.
Having withstood flood, fire, drought and now the coronavirus pandemic, Australians have shown a unity and purpose which has enabled us to make significant progress, and for which all Australians can be very proud and very confident about their future.
I’m just going to take you through briefly some slides to illustrate some of these points, and then happy to take some questions.
So the first slide shows that, at 0.3 per cent, we're seeing the economy contract in the March quarter, but we're still seeing growth of 1.4 per cent through the year.
Next slide.
This is the global comparison. This is a very powerful and relevant chart. At 0.3 per cent, we compare to Japan at 0.9 per cent. Korea, a little bit higher. The United States, as I said, at 1.3 per cent. The OECD average is more than six times what we've seen in Australia. So the average fall across the OECD is six times what we have seen here in Australia. The United Kingdom, Canada, Germany, France at nearly six per cent, Italy, and then of course China at 9.8 per cent, which saw the coronavirus emanate from. That chart shows Australia's relative performance in the face of a global, once-in-a-century pandemic.
Next slide.
This is the contributions to GDP growth. Obviously, public final demand, government spending, and net exports have contributed positively to GDP. But less investment, dwelling, business, as I mentioned, the change of inventories, but it's really a consumption story. The biggest fall in consumption, at 1.1 per cent, that this country's seen in 34 years.
Next slide.
Again, this story breaks down what has happened in consumption, very important slide. Tells the story of goods versus services. People buying food, pharmaceutical goods, goods for their home computer at home as they were preparing for lockdown, saw a rise in consumption for goods. But 2.4 per cent fall in services reflects that people weren't going out to cafes, weren’t going out to restaurants, weren't booking in hotels, and weren't taking transport. This is the story of what was happening in the economy as we saw panic buying in our supermarkets, but we saw people increasingly staying at home.
Next slide.
This is by category. And again, you can see food, alcohol, communications equipment consumption, increasing. Massive drop, transport, hotels, cafes, clothing and footwear, as people stopped going to their retailers.
Next slide.
This is, again, a very interesting slide about the contrast about what's happening in the economy. I'm looking at a Western Australian reporter, a Queensland reporter in the mining sector, the mining sector hasn't got a bad story to tell there. 3.6 per cent up. And this 10.3 per cent through the year is, I think, the strongest it's been in around eight years. In the terms of through-the-year number. Non-mining, we're seeing it down by six per cent through the year, and 2.1 per cent in the quarter. Contrast, and this brings very much to the fore what are the challenges we as a Government are going to face, and state governments are going to face, in getting business investment back. Because we want business to be at the heart of the recovery, and business investment will lag an improvement in confidence. It will still take some time to get investment back to where we were, even though confidence will start coming back.
Next slide.
Government spending continuing to support the economy, 5.3 per cent up through the year, and 1.4 per cent in the quarter. Government spending, State and Federal.
Next slide.
Export and import volume growth. Again, this is where the restrictions had a major impact. This drop here is both a consumption and a services story, 7.7 per cent down through the year, 6.2 per cent in the quarter. This is where tourism was falling as a result of the restrictions and, in terms of our exports, as you know, we saw international students being unable to come because of the border restrictions. And we also saw that affecting our tourist market as well.
Next slide.
This shows how the drought, and indeed, the fires, continue to affect our agricultural sector. Down 10.3 per cent through-the-year and 2.4 per cent for the quarter. It's challenging, but the good news is, with the rains, we're starting to see some restocking and replanting in our farm sector.
Next slide.
Household savings ratio. People are feeling uncertain. And when people feel uncertain about the economic climate, they save more.
I think that’s the end of it. Okay.
So as you can see, it’s a challenging time, but I think the economy is holding up relatively well to other nations.