Good morning. Today’s National Accounts confirm that the Australian economy continues to grow. Australia is in its 29th consecutive year of economic growth.
And in today’s National Accounts, in the December Quarter the Australian economy grew by 0.5 per cent and 2.2 per cent through the year.
This is a step up on the 1.8 per cent through the year growth that we saw at the September quarter.
And this puts to rest the claim by some that the Australian economy was softening at the end of last year.
The Australian economy remains resilient and continues to defy all those who seek to talk it down.
The bushfires have not had a significant effect on the National Accounts in the December quarter, but we know that the fires have had a devastating impact on those communities.
Most of the economic effect of the bushfires is expected to be felt in the March quarter.
The impact of the Coronavirus is serious and is ongoing and is affecting economies the world over.
The Coronavirus is impacting on the tourism, education and export sectors, but also disrupting end-to-end supply chains.
The measures the Government has already put in place are designed to keep Australians safe and that remains our first priority.
As the Prime Minister has foreshadowed, the Government is working on a targeted, responsible and scalable series of measures that are designed to keep business in business and Australians in jobs.
Our fiscal response is designed to keep businesses in business and Australians in jobs.
Our responsible fiscal management has given the Government the flexibility to respond to these economic shocks, with announcements already about the $2 billion National Bushfire Recovery Fund, the $1.3 billion in additional assistance in relation to the drought and $4.2 billion in infrastructure spending brought forward.
This comes on top of providing the most significant tax cuts in more than two decades and our $100 billion ten year infrastructure plan as well as our record spending on health, education and disability support. Having a strong Budget position has allowed us to provide this support without raising taxes.
This is a critical point, we have been able to provide this additional support in the face of the external shocks that we have faced without increasing taxes or without cutting essential services.
Just this week, the OECD singled out Australia and Germany as two countries that could respond to the Coronavirus with additional fiscal measures without endangering debt sustainability.
The Australian labour market continues to perform well, with more than 1.5 million jobs created since we came to Government and the participation rate sitting around record highs. Annual jobs growth is 1.9 per cent, which is nearly double the OECD average and nearly three times what we inherited upon coming to Government.
The housing market continues to stabilise with housing prices up 7.3 per cent through the year to February and the value of new housing finance commitments up 14 per cent through the year to December 2019.
The IMF continues to forecast that Australia will grow faster than the United States, the United Kingdom, France, Germany, Japan and Canada in 2020 and 2021.
We have maintained our AAA credit rating and we’re one of only ten developed economies to maintain that rating from the three leading credit rating agencies.
In today’s National Account numbers, growth over the quarter was driven by household consumption, by public final demand and net exports, with inventories also contributing positively to growth.
Household consumption increased by 0.4 per cent in the December quarter. Expenditure increased in 13 out of the 17 categories and importantly in five out of the seven discretionary categories including furnishings and household equipment. Clothing and footwear also increased strongly.
Growth in household consumption continues to be supported by solid growth in household disposable income, which increased by 2.6 per cent over the second half of last year, the strongest six monthly increase in five and a half years. That is, that the household disposable income in the second half of last year increased by 2.6 per cent, which is the strongest six monthly increase in five and a half years.
This follows the Government’s low and middle income tax offset which is putting more money into people’s pockets and has benefited over 8 million people. Continued growth in labour income, low interest rates and an increase in housing prices has also supported consumption.
Government consumption increased by 0.7 per cent in the December quarter 2019, and 5.3 per cent through the year, supported by the continued rollout of the National Disability Insurance Scheme, an increase in the Pharmaceutical Benefits Scheme listings, as well as ongoing Aged Care initiatives such as home care packages. These initiatives are supporting Australians and ensuring that they have access to the essential services that they deserve.
Government investment is 2.4 per cent higher through the year and has been the case for a number of years, Government investment is an important driver of growth and this is expected to continue. Government investment will continue to be driven by strong growth in transport infrastructure investment which is supported by our $100 billion 10‑year pipeline. This will add the critical infrastructure that we need to generate jobs and support private investment.
Net exports in today’s National Accounts contributed 0.1 percentage points to GDP growth in the December quarter. A lower Australian dollar and strong international demand for Australian exports is supporting growth. Exports are also being supported by the 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. In the December quarter, the current account surplus was $1 billion and is the third consecutive current account surplus – the longest consecutive period of current account surpluses since the 1970s.
While new business investment fell by 0.8 per cent over the quarter there are positive signs emerging in the mining sector where mining investment increased by 5.0 per cent. Investment intentions from the capital expenditure survey indicate that mining investment will continue to grow strongly in 2019‑20 and 2020-21. Non-mining investment fell over the quarter, but is expected to be supported going forward by the elevated pipeline of non-residential building work.
Dwelling investment fell by 3.4 per cent in the December quarter. However, the established housing market has stabilised in recent months, with housing prices and turnover having picked up following significant declines in recent years. National auction clearance rates are back above their 10-year average and, in trend terms, the total value of new housing finance commitments has been rising since May of last year after declining for more than two years.
Reflecting the pick-up in housing prices and turnover in the established housing market, ownership transfer costs partly offset the fall in dwelling and non-dwelling investment, contributing 0.2 percentage points to growth.
Turning to the income side, growth in the compensation of employees (COE), which is effectively the wages bill across the economy, was up 1.0 per cent in the December quarter to be 5.1 per cent higher through the year. Through-the-year growth has been above 4.0 per cent for over two years – the strongest run of growth since 2012 and above the 10-year average of 4.6 per cent.
Average earnings grew by 0.5 per cent in the quarter to be 3.0 per cent higher through the year. The broader measure of average wage growth has been running at a faster rate than the narrower measure of wages growth such as the Wage Price Index. Real wages, as measured by average earnings, are above their 20-year average in through-the-year terms.
Company profits decreased by 1.7 per cent in the quarter, reflecting the impact of the falling terms of trade on mining profits, but remaining 5.8 per cent higher compared to a year ago. Company profits, excluding mining, grew by 3.3 per cent through the year.
The drought continues to have a devastating impact on regional communities and the farm sector, with farm GDP 2.2 per cent lower through the year to the December quarter. Over the past two years, farm incomes have fallen by over 30 per cent.
Living standards, as measured by the ABS’s preferred measure of real net national disposable income per capita, are 1.2 per cent higher through the year.
Productivity growth increased modestly by 0.2 per cent in the quarter to be 0.4 per cent higher through the year in trend terms.
I have spoken numerous times in recent months about the need for all levels of government and business to address Australia’s productivity challenge. To this end, the Morrison Government has legislated the biggest tax cuts in over two decades, committed to a $100 billion infrastructure pipeline, and to the creation of more than 80,000 new apprenticeships, as well as a new wave of deregulation reforms to boost investment and create jobs.
As the Reserve Bank Governor has said, Australia’s economic fundamentals remain very strong and Australians can be confident about their economic future.
But we are confronted by significant domestic and international economic challenges as a result of the bushfires and the Coronavirus which are still evolving.
Australia is well placed to navigate these challenges with our economic plan and our responsible Budget management which is contributing to the resilience of the Australian economy which is reflected and reinforced by today’s National Accounts.
I’m just going to quickly refer to a couple of slides, a few slides, and then happy to take questions.
The first slide clearly points out that in the December Quarter we saw 0.5 per cent growth, 2.2 per cent through the year, which is an increase on the 1.8 per cent that we saw in the through the year numbers to the September Quarter, and it completely rebuts the argument put by some that the Australian economy was weakening in the back half of last year.
To nominal GDP growth, nominal GDP growth is up 4.1 per cent through the year, but it actually fell in the December Quarter, this reflects a fall in the terms of trade where iron ore prices were around 10 per cent lower and that the basket of coal exports in terms of prices were down by around 15 per cent.
This is a, again, a positive story, 13 of the 17 different categories of consumption are in positive terms and five of the seven discretionary categories are also in positive terms including recreation and restaurants.
New public final demand is obviously reflecting what is happening with Government investment as well as Government consumption, at 4.7 per cent through the year, it’s well above the 10 year average and it’s a reflection of what the Government is doing to strengthen the Australian economy.
This is an interesting slide because as we’ve seen, the drought has had a major impact being 2.2 per cent through the year, but we saw a small uptick in the December Quarter in farm GDP. This was a reflection of two factors, one is the destocking that continues to take place on Australian farms but there was also an increase in demand for Australian stock as the African swine fever took hold.
The household savings ratio has come down slightly to 3.6 per cent. As you would remember in the last quarter it went up off the back of people getting the tax cuts, putting money effectively into the bank, effectively saving that money. Now with the tax cuts, people have received their low income tax offset, now that number has started to come down.
Compensation of employees, this is a positive story. This is the wages bill for the Australian economy, above the ten year average and up 5.1 per cent. This reflects the strong employment growth that we’ve seen across the economy and the continued increase in wages.
Again, international employment growth comparisons, at 1.9 per cent Australia’s employment growth is well above comparable countries. So our unemployment today is at 5.3 per cent, but our employment growth at 1.9 per cent is extremely strong compared to other comparable countries.
The next slide is a reflection of the December Quarter real GDP growth numbers. Australia and the US at 0.5 per cent but again Australia, in the quarter that we are talking about today, has performed well compared to other countries.
International real GDP growth comparisons through the year, Australia at 2.2 per cent is just below the United States, but as you’ve heard the IMF as of January still has Australia this year and next growing faster than those other comparable economies.
I’ll take some questions.
QUESTION: What’s the risk of a negative outcome for this quarter given the bushfires, the Coronavirus? And even if you’re putting together a package that’s not going to come into effect for this quarter now, so what’s the risk do you think?
JOSH FRYDENBERG: I think the risk to the economy from the spread of the Coronavirus is substantial and we have seen Treasury estimate about a 0.2 percentage point impact from the bushfires which will fall predominantly in that March quarter. Treasury is finalising now in light of what has happened last night with the US Fed Reserve reducing interest rates and tonight Treasury and myself are on a phone call with the International Monetary Fund for an update on the spread of the Coronavirus and its economic impact, so once that call is completed tonight, Treasury will finalise tomorrow morning their estimate of the impact on the March quarter and the Treasury Secretary, Steven Kennedy, will talk to that number at Senate Estimates tomorrow morning.
QUESTION: Treasurer, a report by Deutsche Bank has predicted that Australia will fall into a recession for the first time since 1991. Are we heading for a recession?
JOSH FRYDENBERG: I think what these numbers show is how resilient the Australian economy is. We’ve had bushfires, we’ve had floods, we’ve been dealing with the ongoing drought as well as the trade tensions between China and the United States. These are events that are outside of Australia’s control. Yet, despite that, Australia continues to grow and we have seen, importantly today, consumption up, net exports up, public final demand continues to contribute strongly to the Australian economy. When it comes to the impact on the March and subsequent quarters, obviously, we would like to mitigate the negative economic impact of the Coronavirus and that is why the Prime Minister has foreshadowed that we will be announcing a series of measures which are designed to keep businesses in business and Australians in jobs. What we will not be doing is we will not be jeopardising the hard work that we have undertaken over the last six years to bring the Budget into the good health that it is in today, where Australia is living within its means. What we will also not do is repeat the mistakes of the past where there were cash splashes that saw wasteful spending on everything from Pink Batts and overpriced school halls to cheques to dead people. We will not be doing that. We will be having a targeted, a responsible, a scalable approach to what is a very serious economic impact as a result of the spread of the Coronavirus.
QUESTION: The PM hinted yesterday that an investment allowance was part of this announcement. These numbers today show that investment is down, one of the things that did fall in the quarter. Can we take it as a given that it will be part of the package and will it have a domestic focus, will the money have to be spent domestically?
JOSH FRYDENBERG: Phil, nothing is a given in this game as you know and the details of that package are still being worked through. I do point out that today the Deputy Prime Minister has already made a statement that he is contacting state premiers and chief ministers and asking them to put forward, as we did last year, investment proposals that could be undertaken in the next, you know, three to six months, effectively, as quickly as possible. In fact, immediately if that is possible. So we will be waiting for that feedback. But as for an investment allowance, this is obviously under very serious consideration, this is something that the business community has asked for and if you look abroad, some other countries have put in place fiscal responses which include support for business and investment. Because this is a really important point, Phil, we want obviously Australian businesses to get the support through this economic shock. But when we are over this economic shock, we want the Australian economy to be stronger. We want to have greater productivity and investment is a key part of that. So obviously that will be a focus for us.
QUESTION: (inaudible) December quarter results, this was the quarter in which the RBA took the cash rate to a record low of 0.75 per cent, you had your tax cuts come in, you brought forward investment, iron ore was over $90 a tonne and house prices were growing at 2 per cent a month. Is 0.5 per cent really the high watermark for growth?
JOSH FRYDENBERG: I think we can continue to see stronger growth in the years ahead and, as you know, we saw an increase in the December quarter of 0.5 per cent but through the year of 2.2 per cent, which is an increase on the 1.8 per cent through the year to the September quarter that we saw. So actually it shows that the Australian economy has continued to strengthen. There are some very positive stories about the labour market in terms of the job creation. There are some very positive stories about the housing market, in terms of how that has now stabilised, and we’ve seen an increase in clearance rates and we’ve also seen people take the benefit of this low interest rate environment. We’ve also seen our export sector continue to be strong, as we capitalise on the Free Trade Agreements. So we do face a significant economic challenge, Shane, and no one should be understating that. The Chinese economy is four times bigger today than it was during the time of the SARS virus, the global economy is much more connected than it was back then. There are now end-to-end supply chains, many of which lead back to China. I think an important indicator of how significant this is, is the indicator that shows manufacturing activity in China, and the PMI was at 50 in January, then in February it fell to 35.7, that’s more than 3 points lower than its number at the height of the Global Financial Crisis. So its more than 3 points lower than it was at the time of the Global Financial Crisis and that does give you an indication as to how significant the challenge is in China and how that is now spreading further afield.
QUESTION: Treasurer, I heard what you said earlier about the problems with the integrity of the cash payments and previous stimulus packages. But people actually like them, they didn’t mind getting a $900 cheque and spending it for the country. Can you explain why families won’t be getting anything from this, the next, stimulus phase?
JOSH FRYDENBERG: Families benefit from a strong economy, families benefit from having people in work, families benefit from having a stable housing market and families benefit from a country that is living within its means. They’re all the objectives of what we will be undertaking.
QUESTION: Treasurer, you have emphasised that help will be to business, and we now seem to have the investment allowance tied down. But obviously the education sector has been badly hit. Do you believe that it has the financial resources to cope without special help?
JOSH FRYDENBERG: The education sector is I think resilient, and it has been doing well, not just from gaining international students but more broadly. Obviously we are monitoring, very closely, the impact on a whole range of sectors across the economy. Of course the education sector and the tourism sector are two of the major ones. International students, and there are some two hundred thousand from China who were here last year, they contribute more than $12 billion to the Australian economy, and with many of those not here to start the beginning of their studies that is definitely going to have a big impact on the economy. We make no apologies for the strong travel restrictions that we’ve put in place to protect the Australian people, but we are going to closely monitor the impact on a whole range of sectors and obviously our response package is going to be trying to ensure that people stay in work and businesses continue to employ and continue to carry on.
QUESTION: Treasurer, putting aside Labor style cheques to consumers, are you ruling out the bring forward of tax cuts, or tax cuts at all, as part of this stimulus package?
JOSH FRYDENBERG: I’m not in the game of ruling in or ruling out particular measures today. What I have said, and what the Prime Minister has said, is that we will be bringing forward a series of measures before the Budget, that are designed to be very targeted, that are responsible and that are also scalable. And they go to the economic impact that the Coronavius is currently having across the Australian economy, and it is our estimation that the impact will not just be confined to the March quarter, but the impact, as this virus continues to evolve, will go on for some time.
QUESTION: But doesn’t that mean putting more cash in the hands of consumers to keep those businesses going and to keep people in jobs?
JOSH FRYDENBERG: Well we are absolutely focusing on supporting those businesses so that they can continue to employ Australians. I’ll take two more.
QUESTION: Treasurer, you have said that you won’t have a reckless cash stimulus or cash splash. But during the Global Financial Crisis the Coalition supported the first cash stimulus, which did work, and…
JOSH FRYDENBERG: …which was more modest.
QUESTION: More modest, yes. So I appreciate you don’t want to rule out or rule in, but it seems that an initial cash stimulus is still within your purview.
JOSH FRYDENBERG: Again, you are talking about a package that is yet to be finalised. The Prime Minister, the Finance Minister, myself and other colleagues are working through the details, Dennis, of that package. But what I can assure you is that package is designed to encourage investment, that package is designed to create more jobs, that package is designed to ensure that the cash-flow strapped businesses that are currently seeing their supply chains interrupted from the impact of the Coronavirus, that they get the support they need to ride through this very difficult period and to be stronger on the other side. Last question.
QUESTION: Treasurer, are you frustrated that the whole message of the gentle turning point and the recovery stories last year, of the second half, has been completely missed because of the underestimations from the ABS and constant revisions upwards? And, secondly, with your phone call tonight with the IMF, what are the key things that you’ll be discussing there in regards to stimulus and the shock decision by Powell to cut by fifty basis points?
JOSH FRYDENBERG: Well look, we represent a number of countries on that IMF committee, countries in Asia, countries in the Pacific, we’re one of 24 nations on that committee. So we will be receiving an update from the Managing Director of the IMF, who I met with recently in Riyadh, and also, no doubt, countries will be able to talk about their own experience. And what I did find very interesting, Matthew, was at the Riyadh meeting, to hear from countries like Singapore, and South Korea, and Japan, and indeed Italy, who when I was there in a meeting with their Finance Minister, was getting word of the spread of the virus in his own country. To hear, not only what they were doing, but to hear of their concerns about the spread of the virus. And so it will be a good opportunity tonight to swap notes with other countries. Obviously, J Powell, who I did meet with as well with the Treasury Secretary of the United States, I also met with him too, Steve Mnuchin, in Riyadh, but they have moved in the US overnight. The Australian Reserve Bank moved here yesterday, and we welcome the announcement by the Big Four banks to pass on that rate cut in full, and I want to emphasise that that 25 basis point rate cut being passed on in full to Australian borrowers, could see someone with a mortgage of say $400,000 around $700 or more better off each year. And if you combine that with the 70 basis points of the three previous rate cuts since the Election that were announced by the RBA, but were effectively passed on to consumers, either directly through the banks reducing their rates or through switching, you’re talking about 95 basis points, that’s worth around $3,000 or more, a year, to someone with a $400,000 mortgage. Now, it’s also difficult, I have to say, for people who are depositors, and that is something that the Government is also considering, because you’ll remember last year we announced some changes to the deeming rate, the lower level deeming rate was brought down to one per cent, the upper level deeming rate is at three per cent. We are now having another look at the deeming rate. That change that we introduced and announced last year was around $600 million in terms of its cost, but we do recognise that both depositors and borrowers, are affected by the changing interest rates.
Thanks very much.