Deputy Speaker, it has been my practice since the darkest days of the global financial crisis to keep the House updated on international developments, and their implications for Australia. I do so today in the shadows of Greek elections overnight and just shortly before the Prime Minister meets with G20 Leaders in Los Cabos. While we do not yet know the full implications of the results coming out of Greece, we do know that the G20 Summit about to get underway is held at a time of heightened uncertainty in the global economy.
The Prime Minister and I have written to our counterparts outlining the need for Europe to take decisive action to stabilise their financial system and move towards deeper financial and fiscal union. All G20 members need to support growth and jobs, including through structural reforms, while putting their fiscal positions on a sustainable path. But we must be honest about the magnitude of the challenges facing Europe in particular, which no one meeting can fix entirely on its own.
I noted in the Budget papers that the European economy as a whole was expected to contract in 2012 and that a re-escalation of the European sovereign debt crisis was the key risk to the global recovery. And despite a period of relative calm on global financial markets in the early months of this year, this was never going to mark the end of the global volatility. Recently, the tempo of global turbulence has risen again, this time triggered by the Greek elections and concerns around the Spanish banking sector.
Global and European Outlook
Deputy Speaker, the focus is obviously on Greece today. Adjustments necessary in Greece were always going to be difficult, with a disenchanted populace experiencing their fifth year of economic recession. The official outcome of the Greek election won’t be known with any certainty today. But whatever the outcome, it is important that Greece’s political parties quickly undertake coalition discussions and form a stable Government.
- We know that fear of contagion from Greece has already put upward pressure on government financing costs across many parts of Europe. Spain has also come under increasing pressure to address the substantial weaknesses in its financial sector, while at the same time meeting its ambitious fiscal targets. I welcome the support euro area finance ministers are providing to Spain to bolster its ailing banks, but it is crucial that further details of the package are released as soon as possible.
While Greece and Spain have become the recent focus of Europe’s distress, we should be under no illusions about the deep-seated challenges that confront Europe more broadly. Weak financial systems and fiscal positions continue to feed off each other at the expense of confidence and growth, and there has been insufficient political accord to make changes that are urgently needed.
For the European project to prevail, what is needed is a pan-European approach that once and for all addresses the crisis. This type of unified approach must no longer be seen as a move that will threaten the individual interests of any one country.
Because the interests of each and every country within the euro area depend critically on the strength of the euro area as a whole. Only by moving forward with fiscal and political integration can Europe be saved. Europe needs to outline, and more importantly, deliver credible fiscal plans – policies that in the short run boost consumption and investment, and in the long run make budgets sustainable.
Good examples are bringing forward infrastructure projects that create jobs and demand in the short run, and add to productive capacity in the long run. Precisely the type of investment that this Government has persisted with, even at the height of the global crisis. The idea that you must choose between growth and fiscal consolidation is false. You can have growth then consolidation, so long as your plans are achievable and believable. The Australian pro-jobs, pro-growth model, with a well anchored medium term fiscal framework is proof of this.
By supporting growth in the face of the worst global recession in 80 years, we have emerged from the crisis in a position of strength that is virtually unrivalled. And by setting out a strict fiscal approach from day one, we are also returning to surplus ahead of all major advanced economies.
Rest of the World
- Against the backdrop of severe weakness in Europe, the United States economy continues to grow at a modest pace, though it has yet to achieve a self‑sustaining recovery. GDP growth has improved since its soft patch in mid‑2011, the unemployment rate has trended downwards, and even housing market indicators are registering tentative signs of improvement.
- While these signs are encouraging, there is still underlying weakness in US labour and housing markets, and the US recovery remains vulnerable to further fallout in Europe. Deputy Speaker, with much of Europe in recession and US growth still modest, the global recovery will continue to rely on emerging markets, particularly those in Asia.
- On IMF estimates, emerging economies contributed more than three quarters of global growth in 2011, and this is expected to continue over the next two years. China has continued to grow at a robust, but more sustainable pace. Chinese policymakers are well-placed, if necessary, to use a range of policy tools, fiscal and monetary, to support growth – and indeed it has recently taken steps to do so.
- We have seen this, for instance, through decisions by the Chinese Government to speed up approval processes and bringing forward infrastructure projects earmarked in the 12th five-year plan. Monetary policy has also been eased, including a reduction in the amount of funds that commercial banks must keep in reserve and a cut in the benchmark lending rate.
Australia
Deputy Speaker, amid the economic volatility now engulfing the world, Australia is recognised the world-over as a beacon of strength, stability and resilience. The most recent data showcases our strong economic fundamentals that put our economy in a league of its own. Over the past year GDP grew by 4.3 per cent, the fastest pace in over four years, which have been the most turbulent since the Great Depression.
We are officially growing faster than any of the major advanced economies and we are projected to outperform these economies over the next two years. While many advanced economies aren’t even back at the starting line yet, our economy is almost 10 per cent larger than it was just before the global financial crisis broke. Since this Government came to office, over 800,000 jobs have been created. At the same time around 27 million jobs have been lost across the world.
These results have been made possible by the Government’s decisions to support our economy and jobs in turbulent global times. Our fiscal stimulus shielded our economy from the worst of the global recession, and our credible strategy to return the budget to surplus has underpinned the confidence that financial markets have in Australia.
And in the face of rugged global circumstances we haven’t ignored or overlooked important investments in our productive capacity. Together, we have won the confidence and respect of the world through our actions and our resilience.
Confidence in our fiscal management is a key reason behind Australia receiving a AAA credit rating from all three major ratings agencies, for the first time in our history. Confidence in our financial system has ensured that Australian banks remain some of the most secure and highest-rated in the world. And confidence in the Australian economy has seen our pipeline of resources investment grow to a staggering half a trillion dollars. Over half of these projects are at an advanced stage, which provides a bedrock of support for our economy in these uncertain times.
Of course, just as Australia has not been unaffected by global developments to date, we would not be immune to a further deterioration in global conditions. While our economy walks tall, difficult global conditions have weighed on sentiment and demand for some of our exports, and we have seen the impact of global turbulence on our share market. Consumers are also more reluctant to take on debt, and this has contributed to subdued conditions in our housing market. And while some industries are booming, global headwinds have made it harder for sectors already struggling from a high dollar and broader structural transitions underway in our economy.
We know there is some anxiety in our community during these times of economic turmoil abroad and structural change at home. But Australians can take great confidence in our rock-solid economic fundamentals and our standout performance in these testing times. Right now we have the best combination of impressive growth, low unemployment, contained inflation, strong public finances, low interest rates and a record pipeline of investment.
We are only one of eight countries in the world to receive a AAA credit rating with stable outlook from all three global ratings agencies. And during this difficult chapter for the global economy, there is an even greater responsibility of each and every member of this House to acknowledge the great strengths of our economy, our people and our businesses.
Conclusion
Deputy Speaker, I accept that there will be continuing volatility from Europe for some time yet, but I do not accept that the pace and scale of action to address it has been adequate. As the Prime Minister gathers with our G20 colleagues in Mexico, the clear message that she and I have conveyed to our European colleagues is that we all have a responsibility to put world growth on a stronger and more sustainable path.
And we will continue to remain closely engaged with our international counterparts to reinforce the strengths of the Australian economy and our region – a message I conveyed over the weekend to the Managing Director of the IMF, Christine Lagarde. We will continue to confront new challenges and opportunities with the same spirit of energy and resilience that our country is proudly known for.
CANBERRA