Welcome to the latest edition of my economic note. I spent most of last week travelling around regional NSW, before heading back to Brisbane for talks with members of the Australian Pensioners and Superannuants League and the Brisbane North Chamber of Commerce. At the Illawarra Business Chamber in Wollongong, I joined with local MPs Sharon Bird and Jennie George to announce a further $3 million for the feasibility study of a rail line between Maldon and Port Kembla via Dombarton. There's just no substitute for getting around and talking to people on the ground, so I really enjoyed the opportunity to talk face to face with business people and locals in Wollongong, Grafton and Lismore about the challenges they confront in their local communities in the face of the global recession. What struck me most during these conversations was how eager people were to see that not just themselves, but also their fellow Australians, are cushioned from the worst impacts of the global recession. During a discussion I had over morning tea with local MP Janelle Saffin and locals from Lismore, Ballina and surrounding areas, I was also glad to hear that people are finding this economic note a useful way to keep up to speed with local and international developments.
The International Monetary Fund (IMF) released two significant reports last week – the World Economic Outlook update and the Global Financial Stability Report update. These reports forecast the global economy will contract by 1.4 per cent in 2009 – the biggest contraction since World War Two. The IMF reports also confirmed that Australia is outperforming every major advanced economy. They forecast the Australian economy will contract by 0.5 per cent in 2009, compared to a massive 3.8 per cent contraction across the world's advanced economies.
The IMF reports provide yet another endorsement of economic stimulus, noting "macroeconomic risks have eased in response to concerted fiscal and monetary policy stimulus measures." Although the IMF cautions against the early withdrawal of fiscal stimulus measures, it also calls for international cooperation in developing careful exit strategies for when "growth is firmly re-established". It notes that "even though the time has not yet come to start withdrawing all the various forms of official support that have been extended in response to the crisis, it is important that carefully considered and coordinated exit strategies are in place." This follows similar remarks by the Prime Minister earlier in the week in this speech he delivered in Germany.
While the IMF confirmed that Australia has the best performing economy of any major advanced economy, by no means are we immune from the ravages of the global recession. Thursday's labour force figures showed that the unemployment rate rose to 5.8 per cent in June, up 0.1 percentage points from May. There is no doubt that without the Government's three-stage stimulus strategy, the jobless rate would be worse. Around the world, unemployment rates have risen to 7.2 per cent in the UK, 8.4 per cent in Canada, and 9.5 per cent in both the US and the Euro zone.
While Australia experienced a fall in full-time employment in June, there was actually a slight increase in part-time employment. This shows that Australian employers are doing everything they can to hold on to their staff, by choosing to reduce staff hours rather than lay them off. This reinforces the message I got from business people last week in Wollongong, Grafton, Lismore and Brisbane, that they are doing all they can to retain staff in the face of the global recession. It really is heartening to know that all Australians – government, businesses and local communities – are pulling together in the midst of the worst global recession in 75 years.
Last week's Westpac-Melbourne Institute Index of Consumer Sentiment revealed that consumer sentiment rose by 9.3 per cent in July, to its highest level since December 2007. This week's Fact of the Week is that consumer sentiment has surged by 23.2 per cent over the past two months – by far the biggest two-month increase in consumer confidence since the index began in 1975.
Westpac Chief Economist Bill Evans described this as "unquestionably a stunning result", adding that "the success which the Government's stimulus package has achieved in boosting confidence will be a lesson to other governments". Mr Evans went on to say that "the stand out force must be the huge financial handouts introduced by the Government to counter the global financial crisis." He noted that the cash stimulus payments to low and middle income earners earlier this year have "resulted in an instant boost to retail sales and supported this surge in confidence." I heard a similar story from the small business people I spoke to on my travels last week. Time and again, small business owners told me that if it wasn't for our economic stimulus, they wouldn't have customers walking through the door, and would have had to lay off staff.
We also received further evidence last week that the Government's stimulus, together with lower interest rates, are working to support activity in the housing sector. Housing finance data showed that the number of owner-occupied housing finance commitments rose for the eighth straight month in May. Since the announcement of our First Home Owners Boost in October last year, the number of loans for the construction of new dwellings has increased by 60.6 per cent, to now stand at its highest level since January 2002. And it was great to see the number of loans to first home buyers increase to 19,527 – the highest number since the series began in 1991. You can read more about last week's encouraging housing finance figures, and the importance of the First Home Owners Boost and lower interest rates, in this article.
Since September last year, the Reserve Bank has cut official interest rates by 4.25 per cent. On Tuesday, the RBA Board decided to leave the official interest rate unchanged at 3.0 per cent – its lowest level in almost half a century.
In the week ahead, we will learn China's GDP outcome for the June quarter. Here at home, we will receive lending finance figures for May, the international trade prices index for the June quarter, and the results of the NAB Monthly Business Survey for June.
While we received some encouraging data last week on the confidence and housing front, we know we face a rocky road ahead. Not only do we face a substantial jobs challenge imposed by the global recession, but also challenges caused by dramatic falls in contract prices for some of Australia's key commodity exports. However, after spending much of the past few weeks talking to business people and locals from all parts of Australia, it's heartening to know that Australians are ready to confront these challenges with a united front and their typical Aussie resilience.
Treasurer of Australia
Sunday 12 July 2009