Thanks very much for that introduction and for that welcome. It is great to have the opportunity to address the CEO forum again.
It has been a little over a year since I last attended one of your gatherings - and what a year it has been. Last time we met, a couple of months before the collapse of Lehman Brothers, I had just returned from meetings with a number of my G-20 colleagues in Europe and Asia. I spoke to you then about the difficult global environment I had seen and the challenges ahead. And I also talked about the cheerless investment bankers I had met in London.
Well as we all know things got a lot worse for those investment bankers. And the ramifications for the rest of the world are a global recession the likes of which we haven't seen for 75 years. As a result I've got to know my G-20 colleagues far better than I ever expected. In fact, I've often remarked that I've probably spent more time with them in the past year than I have with my wife.
From the first week in January last year, when I sat in my car at 6.30 in the morning and Hank Paulson [then US Treasury Secretary] and I discussed the deteriorating situation in the US economy, it seems like barely a week has gone by that I have not met with my international counterparts or been on the phone to one of them. The close working relationships we have built have been critical in delivering the extraordinary global response that is limiting the worst impacts of this global recession on our people.
The other focus of my speech a year ago was the longer term reforms the Rudd Government is committed to. And despite the difficult times, we remain unwavering in our determination to invest in the critical drivers of long-term growth and through this, lift the living standards of all Australians.
I will talk a little further on how we are meeting the longer-term challenges facing Australia, but before doing so, let me give you a bit of a sense of the current situation and how Australia is faring.
Global Recession and Australian Response
As I said, the past year has been quite incredible. And it is perhaps best measured by the collective sigh of relief that met the recent upgrade in the IMF's global forecasts for next year.
While the IMF slightly downgraded its global growth forecasts for this year to a contraction of 1.4 per cent, it upgraded its growth forecast to 2.5 per cent for 2010. It is an unfortunate sign of the times that despite this year being the worst since World War II, the numbers were still greeted with relief. The IMF is still forecasting a massive contraction in advanced economies of 3.8 per cent this year. And while we have seen some moderation in the rate of contraction in the developed world, it is still the case that the US, UK and the Euro area economies continued contracting into the second quarter of this year.
Australia's experience has been more positive, but as all of you will know, we have not been immune from the impacts of the global recession. In the March quarter, Australia's growth of 0.4 per cent was the strongest of any advanced economy, and we were one of only two advanced economies to grow in the quarter.
The Australian story has been different to the rest of the world for three main reasons. Our communities and businesses and workers have pulled together. Among our inherent strengths are our geographic location and our more secure banking system, bolstered by very effective bank guarantees. Our bank guarantees have secured the savings of 15 million Australians and allowed Australian banks to raise more than $110 billion in wholesale funding. This money is ensuring banks continue to lend to businesses and households, providing vital support for jobs and growth. And in tandem with monetary policy, we acted quickly and strongly with three waves of stimulus that we now know have supported thousands of businesses, saved thousands of jobs and prevented a deeper downturn.
Like me, you'd be pleased to see that there is now substantive evidence that the efforts of the community and our stimulus measures are working. As the IMF put it two weeks ago in its annual assessment of Australia, “[t]he authorities' timely and significant macro policy response cushioned the domestic impact of the global financial crisis.”
Recent data from the Australian Bureau of Statistics shows retail sales are now 5.2 per cent higher than they were in November last year, just before the Government's first stimulus payments to households. In the same period retail sales fell across the developed world.
We have also seen finance commitments for the construction and purchase of new dwellings increase by 55 per cent since October, when the Government's First Home Owners Boost was introduced. And the number of first home buyers has almost doubled.
There are also clear signs our second and third phases of stimulus are also working to support jobs now while investing in the critical infrastructure for tomorrow. The value of non‑residential building approvals almost doubled in June and the recent Access Economics Investment Monitor showed 104 new public sector projects in the June quarter, compared with just 14 new private sector projects.
And perhaps the most important impact, something that exceeds the sum of the parts of our stimulus, has been the impact on confidence. Data released by Westpac and the Melbourne Institute last week shows consumer confidence rose again in August, up another 3.7 per cent. Over the past three months, consumer confidence has increased by 27.8 per cent, the biggest three month gain in the history of the series. Everybody has had a role to play in building confidence and working together to meet the challenges imposed on us by this global recession. And, ultimately, as I have said before, it is the confidence of consumers and businesses that will provide the spark for a sustained economic recovery.
Challenges Remain
While these are encouraging signs, I know that we continue to face substantial challenges as the full impacts of the global recession continue to wash through our entire economy.
The job is far from over. We know that many of our fellow Australians have lost their jobs and others will do so in the difficult months ahead. We expect further increases in the unemployment rate, but Treasury estimates that 210,000 more Australians would be out of work if not for the stimulus package. As a consequence, Australia's unemployment rate is expected to peak well below the double‑digit rates forecast for many of the major advanced economies.
It is the paradox of recovery that unemployment will continue to rise even after the economy begins to recover. And it is inevitable that as the global economy recovers, global interest rates will rise from their current historical lows and, as Governor Stevens noted last Friday, domestic rates will eventually rise as well.
No longer is our economy being fuelled by the remarkable rise in our terms of trade that resulted from the mining boom and filled the Treasury with easy revenue. Falling commodity prices, from their remarkable highs, are stripping our economy of tens of billions of dollars and with it tens of thousands of jobs. Business investment is also retreating in the face of weaker global and domestic demand.
These challenges combined with the ongoing difficult global environment make it clear just how important full implementation of our stimulus will be for our economic recovery. It is a fundamental premise on which the recent upward revisions to forecasts by the IMF and RBA are based. And that's why, to those who suggest we should wind back stimulus, I have been saying that would be pulling the rug out from under the recovery. It is clear that those who opposed the Government's stimulus measures, and now call for their premature withdrawal, have never understood the magnitude of the global recession and do not understand the global challenges that still confront us.
A Whole New World
Global economic growth going forward will be weaker than over the past decade. The IMF forecast for global economic growth of 2.5 per cent next year is significantly lower than the global growth rate of 5.1 per cent in 2007. And it is the extraordinary actions taken by governments right around the world which are behind much of the growth we will see this year.
Looking to the year ahead, I expect growth to be increasingly supported by the global rebuilding of inventories. Recent IMF forecasts for the US are consistent with this view. The IMF is forecasting the US economy to grow by a modest 0.8 per cent in 2010, and of this 0.7 percentage points are forecast to come from inventory rebuilding.
This leaves the key challenge of how the world sustains growth beyond 2010. For while we will continue to see weak global growth as we emerge from the global recession, we are also witnessing the very structure of the global economy change dramatically.
We have seen world trade collapse by more than 20 per cent in the past year - the largest contraction since World War II. While world trade will recover, it is reasonable to expect that its growth will not return to pre-crisis rates. But at the same time we will continue to see the trend of an increasing proportion of world trade being driven by developing rather than developed countries. Over the past 10 years the share of world trade accounted for by emerging economies has grown from less than one-quarter to almost 40 per cent, with the growth in Asian trade being the key driver behind this. So while growth in world trade will be slow in the period ahead, an increasing proportion of it will be at our doorstep in the Asian region.
The American consumer will no longer be the primary driver of global growth. And as a result, emerging economies, particularly in our region, will increasingly need to generate their own internal demand.
This period of change will bring with it many challenges, but it will also bring the centre of global growth towards us and with it opportunities. That is why I was so encouraged by Monday's announcement that removes a major hurdle to the $50 billion Gorgon LNG investment in Western Australia. At peak construction the project will generate up to 6,000 jobs. And it will generate in the order of $300 billion of LNG exports. This may be the biggest single investment ever made in Australia and underscores the confidence in this nation's long-term potential.
I'm also confident in the long-term potential of this nation. That's why I'm focused not just on ensuring we weather these changes but that we are positioned to grab the opportunities of the Asian century.
My Focus For the Year Ahead
We are delivering the remaining stimulus that is so vital to support growth, but we are also simultaneously delivering the vital investments in nation building infrastructure that will lift the productive capacity of our economy.
Just as the world economy will be different post-crisis, we want to build a new economy here - and a far more stable basis for prosperity. In the past, Australia has relied too much on the rollercoaster of mining and stock market boom and bust for our prosperity. We need to build more stable foundations for growth for the future, by reforming the economy to boost long-term productivity growth.
If one lesson is clear from the past year it is that tomorrow's prosperity will turn on the policy choices we make today. That's why my three jobs for this next year are: one, to invest in our push for productivity; two, to deliver on fiscal discipline; and three, to keep up a program of vigorous global engagement.
For productivity, we are delivering the most critical and long overdue infrastructure investment this country has seen in decades. We are bringing our economy into this century through the National Broadband Network and the Education Revolution that will help our kids attain rewarding and higher paying jobs. We are ensuring our economy is not left behind as the world tackles climate change through the introduction of the Carbon Pollution Reduction Scheme and driving energy efficiency in our economy. We are removing red tape and impediments to work in our economy through the biggest tax and welfare review in 50 years, through competition and regulation reforms, and the reform of Commonwealth-State relations.
And we are doing this while delivering on our promise to return to surplus and pay down debt, which began with critical structural budget reforms introduced in the May Budget. It is important to remember that Australia has a much stronger fiscal position than any major advanced economy. Or as the IMF said of its recent forecasts, our fiscal actions still “would leave Australia in an enviable fiscal position by international standards.” But we are also dealing with the demographic time bombs which will be illustrated by an updated Intergenerational Report later this year. And this, in turn, has implications for how we pay for critical health care reform and tax and welfare changes.
This year will also be punctuated as the last was, with a series of meetings with my friends and colleagues at the G-20. We will be working through the G-20 to ensure a coordinated global response to the substantive global challenges we still face. While the G-20 has done much to address the immediate crisis, we must follow through with our commitments to reform the global financial system and ensure that efforts to support growth and jobs over the year ahead are fully implemented. And consistent with this, the G-20 will begin to map out an appropriate timeframe and process for the eventual coordinated unwinding of the extraordinary measures taken by governments to stabilise the global economy and support recovery. Early next month I will pursue these key challenges in London and then will join the Prime Minister at the Leaders' Summit in Pittsburgh.
But I also understand the vital role that the business community has to play in meeting these global challenges. That's why I will also be working to ensure the G-20 fosters stronger business to business links in the process of rebuilding the global economy - so that our global recovery is based not only on the coordinated planning and interactions of governments, but also the coordinated planning and interactions of businesses. Because if one thing is clear from the Australian experience in weathering the worst impacts of the global recession, it is that when the business community, workers and the government all come together, we can pull through the most difficult of times.
The Economic Debate
I want to finish on this point about the current economic debate, not just here in Australia but in the US and elsewhere as well.
As CEOs, I know you are practical people. You're not interested in ideology or dogma. You're interested in results. And you're interested in what works. The Government is as well - and that's why when faced with the sharpest synchronised global downturn since the Great Depression, with the world turned upside down, we did act quickly and, dare I say it, pretty courageously. And we know now that we got it right - that our three waves of stimulus are working to support jobs and growth.
While governments right across the political spectrum have taken extraordinary measures and worked together to limit the impacts of the global recession on their people, there have been a few isolated examples of ideologically driven opposition. On Friday, some American friends were describing to me some of the criticisms coming from the far right of President Obama's actions to stabilise the US economy - and many of these criticisms sound strikingly like some of those we've heard from the Opposition here.
Now I'm not here today to hop into the Opposition, but I do want to address on a straight factual basis some of the claims we have been hearing.
First, we have heard claims that economic stimulus is not working. I use the past tense advisedly, because we haven't heard that of late, and we all know why: retail sales, housing and confidence numbers are all up and unemployment is rising more slowly than it would have without action.
Secondly, we hear claims the increase in borrowing is unmanageable, and all the fault of government. Again, the facts are different. Tax revenues have collapsed by $210 billion and that's the principal reason for our debt. Australia's debt levels are small compared with other countries, and almost every nation would happily swap our position for theirs. The IMF recently commended Australia for our plan to return the Budget to surplus when the economy recovers.
When you strip out the ideology and dogma, there's no foundation to criticisms of our stimulus and our levels of borrowing. Both are necessary and important contributors to the fact our economy is outperforming those of comparable countries.
Our task - in partnership with you in business - is to finish the job on stimulus and invest in that push for productivity that I spoke about earlier. And that's what we'll do.
Thank you and I look forward to the discussion.