Welcome to the latest edition of my economic note. This past week we received some really important updates on the international front, and some further indications of the economic headwinds we currently face in Australia as we go about putting this year's Budget together.
This week we received stark evidence of the impact this global recession is having on our own region. Growth in China, our biggest trading partner, slowed to 6.1 per cent over the year to March this year. To put this into perspective, China's growth rate has now halved in a little over 12 months to its lowest rate in almost a decade. But fortunately, we are also seeing early indications that the Chinese Government's large fiscal stimulus package is working to help support activity in their economy, with notable improvements in lending and production.
We also saw a very big contraction in Singapore's economy, another of our key trading partners. Singapore's economy contracted by a massive 11.5 per cent over the year to the March quarter. This result was much worse than most were expecting and represents the Singapore economy's most severe contraction for over three decades.
Unfortunately, the deep downturns in the world's largest economies and our key trading partners will have very big consequences for our own economy. As we have been stressing for some time, though we are much better placed than most nations, it is inevitable the impact of the global recession will be felt here.
That's why the Government is so committed to doing everything it responsibly can to help cushion Australians against the worst impacts of this global recession and ensure we are well placed to take full advantage of the global recovery when it comes.
Recent analysis from the International Monetary Fund suggests that while the current global recession could be unusually long and severe, strong policy action – particularly expansionary fiscal policy – combined with the restoration of confidence in the financial sector could help accelerate and strengthen the recovery.
Last week, the Japanese Government outlined its biggest fiscal stimulus package, totalling 15.4 trillion yen (or 3 per cent of GDP) to be spent over several years. This is the fourth package that Japan has announced in response to the global slowdown.
For those interested in reading more about global responses, I would refer you to this recent speech by US President Barack Obama, which outlines the unprecedented actions his Administration has taken.
Figures released last week provided mixed signals on the state of our own economy.
In a welcome piece of news, the NAB Monthly Business Survey recorded a significant rebound in business confidence during March, following a similar jump in February. Though we don't read too much into one month's figures, the improvement in business confidence, following last week's improvement in consumer sentiment, is certainly encouraging.
Other data continues to indicate that our economy is feeling the effects of this global recession. The Westpac-Melbourne Institute Leading Index, a key indicator of future economic activity, gave us some pretty familiar indications that the Australian economy is weakening in the face of the global recession.
During the week, Nicola Roxon and I announced that the Government will re-introduce the alcopops measure into the Parliament as part of our ongoing commitment to the fight against binge drinking. This measure ensures that all spirits are taxed at the same rate whether they are consumed as alcopops or full strength spirits, closing the tax loophole provided to the alcopops industry by the previous government in 2000.
This brings me to this week's Fact of the Week. Our alcopops measure – supported by health experts, police superintendents and community groups – has seen a 35 per cent fall in the consumption of alcopops and a significant fall in spirits consumption overall.
In the coming week, the International Monetary Fund (IMF) will release its biannual Global Financial Stability Report together with updated economic forecasts in its World Economic Outlook. With the OECD and World Bank having revised down their forecasts in recent weeks, it would be a surprise if the IMF did not follow suit.
Here in Australia, we will also receive figures this week on domestic inflation pressures. Given the falls in demand both here and abroad, most expect to see inflationary pressures continue to ease over the near term. The Reserve Bank will also publish the minutes from its latest board meeting on Tuesday.
After another hectic week of Budget preparations, I will be heading to Washington on Friday for an important meeting of G-20 Finance Ministers and the Spring Meetings of the IMF. We'll be ensuring implementation of the important outcomes of the G-20 Leaders' Summit held in London earlier this month, and also identifying key priorities for dealing with the global recession going forward.
This will be a critical opportunity to discuss the extent of the global recession with fellow G-20 Finance Ministers, and get an assessment of just how much the global recession is impacting on each of their economies. These soundings will feed into important final decisions for the preparation of the Budget to be delivered on May 12.
Treasurer of Australia
Sunday 19 April 2009