I want to say at the outset that I'm a great optimist about the future of our country, despite the substantial risks currently facing the global economy. We have a $1.4 trillion economy – the 13th largest in the world – and a standout performer among developed economies. We're punching well above our weight in terms of our strong economic fundamentals – and the world is taking notice.
For the first in our history, we are in the right part of the world, at the right time. But maximising the opportunities of the Asian Century will require more than just being here. That's why in September the Prime Minister commissioned a White Paper to explore the opportunities for Australia in the Asian Century.
The White Paper will provide a national blueprint for Australia at a time of transformative economic growth and change in Asia. It will help Australia to navigate the Asian Century – to seize the opportunities it offers and to meet the challenges it poses. Because what is often not fully appreciated is the sheer scale of the China story – I think it's just worth recalling some of the numbers here.
Since 1978, China's economy has grown a staggering forty fold. Looking forward over the five years to 2016, China could surpass the US to become the world's largest economy. In fact, by 2020, China is projected to account for about one fifth of the size of the global economy. And by 2030, almost one quarter.
Only a decade ago, Australia exported around as much to China as it did to the UK, and more to the US than to China. In the years since, our goods and services exports to China have increased more than seven-fold. Our exports to China are now around five times larger than those to the UK and more than four times larger than to the US. And of course, as part of this, we see huge levels of Chinese demand reflected in the prices paid in global markets for our key commodities.
But while China is a big part of the story, it is far from complete until we consider the prospects for growth in the broader Asian region. India is of course is critical – by the middle of this decade, India's contribution to global growth alone is expected to almost double from its contribution in the 1990s. But it's really a story about the whole of our region – countries like South Korea, Indonesia, Vietnam, Thailand, Singapore and Malaysia.
Just think about this. In 1990, just under one-quarter of world economic activity fell within 10,000 kilometres of Australia. By last year, it had risen to more than one-third. And by mid-century, nearly two thirds of global production and consumption will be taking place within 10,000 kilometres of Australia. What this tells us is that we are witnessing a changing of the guard globally – from West to East. If anything, the global volatility we are currently seeing has probably accelerated the structural shift from developed to emerging markets.
In 2010, around two thirds of our goods and services exports were destined for Asian markets. What I've been focussed on for some time is the middle-classing of Asia – a transformation marking an inflection point in global economic history. We're talking here about Asia evolving from the world's largest production zone into the world's largest consumption zone. And I'd just like to give you a sense of what I mean.
In 1980, the income of the average Chinese citizen was 2 per cent of the average American. By 2010, this had risen to 16 per cent. Across the Asia-Pacific region, the middle class is expanding at an extraordinary pace - around 110 million people are added each year. By the end of this decade, there are expected to be more middle class consumers in Asia than in the rest of the world combined. And by the end of the next decade - in 2030 - around two-thirds of world's middle class consumers will be in the Asia-Pacific region.
Of course this will mean a huge range of opportunities for our own high-value service industries to build new, deep and diverse customer bases. New customers demanding more services – both at home and abroad. Education. Recreation. Healthcare. Banking. And travel. This just gives you a small window into the universe of possibilities lying in front of us as Asia becomes the world's growth engine. But none of this will come easy.
We have it within us to succeed by choice, not by chance. We made our own luck in the dark days of the global financial crisis. Now we must get our settings right if we are to consolidate the gains we made and take them forward into the Asian Century. And we're going to need government, business and the workforce all working together – just as we did when we fought off recession – if we're going to really maximise the opportunities before us. I just want to spend a bit of time on this because I think it's going to be really important for the shape of future policy debates.
Too often commentators and headline-writers take the simplistic path and characterise important economic policy debates as pitting Labor versus Business. Of course, they often do this not only because the truth is more nuanced, but sadly because an outdated ideological battle makes for a more sensational front page, or because of blatant political bias.
I'm proud of our roots among working Australians, and I firmly believe that the best way to create opportunity for those working Australians is to have a strong, productive and vibrant economy. An economy which innovates and creates newer and better jobs. And the only way to achieve that is to work hand in glove with business to get our settings right, to boost incentives, productivity and growth:
- By getting the workers we need, like our Budget measures on apprenticeships, skilled migration and boosting participation.
- By tackling our patchwork economy – getting a fairer share for our non-renewable mineral wealth to cut company tax for businesses in the slower lane, support small business and grow workers' super.
- By putting a price on carbon to preserve our international competitiveness so we don't export the green jobs of the future.
- By building the NBN to revolutionise the way businesses transact and overcome the tyranny of distance which has plagued us in commerce and trade since the early settlers.
- By pushing on with our deregulation agenda through COAG to reduce red tape for business – like a uniform national OH&S regime.
All of these things – every last one of them – are good for business and good for workers because all will underpin our dynamic future economy. And critically, all of these reforms will require close and constructive engagement between the leaders of the business community and the most senior members of the Gillard Labor Government.
Just as we worked closely with business to stimulate the economy, adding substantially to government debt, to keep the country out of recession and keep customers coming through your doors. In fact one of the most fundamental reasons we avoided recession and have such strong economic fundamentals is because we worked hand in hand with business through the dark days of the global financial crisis.
Economic Stocktake
It's precisely those rock solid fundamentals which should give all Australians confidence amid continued volatility in the global economy.
It's because we acted fast during the crisis with actions like our fiscal stimulus and our bank guarantees to keep the doors of business open that we've got a strong platform to build on as we go forward.
Our economy is nearly 6 per cent bigger today than it was in March 2008 before the crisis hit, while many developed economies have not yet returned to pre crisis levels of output. All told, we've had a stunning 20 years of continuous economic growth. But of course, as you know, it's been anything but plain sailing.
It's not just the biggest global recession in 75 years we've faced, but the impact of the natural disasters which had much greater economic costs than most expected.
While our economy grew by 1.2% in the June quarter, we're still seeing a much slower recovery in coal exports than expected as miners battle to pump the water out of their mines and rebuild capacity. We've got a massive $456 billion of planned investment in the resources sector alone – huge amount in the context of our $1.4 trillion economy. But that creates challenges for other sectors of our patchwork economy struggling under the weight of a higher dollar and competing for workers. The global instability we're seeing has also made consumers and businesses unsettled, which is adding further to these existing stresses.
Earlier this week in announcing the Mid Year Economic and Fiscal Update, I talked about the impacts that global volatility has had on our economy and our budget bottom line. Of course, much of the focus remains on Europe.
The global economy has already paid a very high price for the failure Europe to get its own house in order – this has gone on far too long. With the US economy also sluggish, two of the world biggest growth engines are misfiring at once and lowering prospects for global growth. As one of my G20 colleagues put it very dryly at our recent meeting in October with the storm clouds darkening – "I've seen this movie before".
Of course, while Australia's fundamentals have only grown stronger since 2008, we are by no means immune. We've seen the impacts of global instability being transmitted to our own economy through volatility in our share market and commodity prices. We've seen a decline in confidence, households become more cautious, and businesses become a little more hesitant in their hiring decisions. Of course, this has had an impact on budget revenues, adding to the capital losses from the GFC which are still washing through.
As I said this week, while the turbulence in global economy has made our task harder, we're determined to keep making the tough decisions required to bring the budget back to surplus in 2012-13 as planned. Sticking to our strict fiscal strategy is absolutely critical at a time of when global financial markets are punishing those without discipline. And it's critical we continue to make room for the economy to grow, with resources investment alone expected to rise from massive $47 billion last financial year to a staggering $87 billion this financial year.
So overall, despite global headwinds, we still expect to grow at around trend in 2011-12 and 2012-13 with real GDP growth at 3¼ per cent, underpinned by resources investment and commodities exports. Employment growth is forecast to moderate, but the unemployment rate is expected to remain low and with inflation remaining well contained.
So as I said before, our economic fundamentals are strong and we've got our sleeves rolled up putting in place our reform agenda to maximise the opportunities of the Asian Century. Because every single day the Gillard Government is thinking about, talking about, and working towards our vision for Australia's future economy.
A high- tech, low-pollution economy with highly skilled workers at its core and highly engaged business leaders at the helm of creative industries. A productive, dynamic and flexible economy which innovates, adapts and evolves to meet the challenges and opportunities of the day. That's our vision for the future.
I'd like to thank the businesses in this room for being part of that discussion to date, and I look forward to a deep engagement with the business community on our economic agenda as we go forward. Thank you.