Welcome to the latest edition of my economic note. I was really pleased when some of the locals at the Adelaide Community Cabinet meeting I went to last Tuesday mentioned this note, and encouraged me to keep them posted in this way on what's happening to our economy during this deep global downturn.
This week the note comes to you at a time when very tentative signs of stabilisation in the global economy continue to be mixed with reminders of just how severe the global recession continues to be. There has been some further welcome evidence of the success of the government's stimulus plan to help cushion the economy from the global recession, and the Government continues to focus on the long term challenges facing our economy. This week the Prime Minister also gave two speeches on the importance of reforming Australia's health care, and on our plans for a nation building recovery.
While we continue to see some tentative signs of stabilisation in the global economy, we got a reminder of just how savage the global recession continues to be. Data released on Friday night showed that the US economy contracted by an annualised 1.0 per cent in the June quarter, and has contracted by 3.9 per cent over the past year.
This data confirms that the US economy contracted for the forth straight quarter – the first time this has happened since records began in 1947. One positive to come out of the data was that the rate of contraction in the US has slowed, showing the extraordinary actions taken by the US government are helping to stabilise both financial markets and the economy.
While it is encouraging to see the rate of contraction slow, these numbers show that we are a long way from a sustained recovery in the global economy. The IMF's latest report on the US, also released on Friday night, showed just how difficult that recovery is likely to be. The IMF is forecasting the US economy to contract by 2.8 per cent in 2009, before only a modest recovery, with growth forecast to be just 0.8 per cent in 2010. The IMF is also forecasting US unemployment to exceed 10 per cent. We had further evidence on Friday of the impact of the global recession with the Japan jobless rate hitting a six-year high of 5.4 per cent in June, while the euro zone jobless rate reached a 10‑year high of 9.4 per cent in June. Since June 2008 more than 3 million people have lost their jobs in the euro zone.
It was encouraging to see this week further evidence of just how well stimulus is working in our economy and in our community, but we still have some very big challenges.
The Access Economics Investment Monitor, released this week, showed a further slowing in the number of new private sector investment projects. Only 14 new projects were added by the private sector during the June quarter, the lowest in the eight year history of the publication.
With the large drop in our key commodity exports and the difficult outlook for the global economy, businesses right across Australia are scaling back on their investment plans. This is just one of the challenges the Australian economy faces as the full effect of the global recession continues to wash right through our economy.
This data also underscores the critical role that public investment is doing to fill the gap, led by our investments in roads, rail, ports and schools in your suburbs and towns. Access Economics notes that overall investment is receiving significant support from the public sector, through the Government's nation building infrastructure investment.
Thursday's building approvals data also showed further evidence of stimulus working, with the number of public building approvals up 17.2 per cent in June, to be at their highest level since January 2001. The value of non-residential building approvals almost doubled in June. While month-to-month figures can be volatile, this is the biggest monthly increase since January 1990. The ABS noted that these figures reflect the impacts of the Government's stimulus measures, including the Building the Education Revolution and social housing initiatives.
The building approvals data also showed private home approvals increased for their sixth consecutive month in June, supported by the First Home Owners Boost. They are now 20 per cent higher than their recent trough in December 2008, and are 7.3 per cent higher than in October 2008. Again, this shows our stimulus is helping to support the public and private construction industry and the jobs of tens of thousands of Australians employed in the construction sector.
While business conditions remain difficult, the NAB Quarterly Business Survey reports a significant improvement for the June quarter – the first improvement since March 2008.
I am pretty optimistic about the future for the Australian economy, but we still need to be careful about the road to recovery. As the RBA Governor, Glenn Stevens, said in his speech last Tuesday, ";… it would be a mistake now to lapse into the comfortable assumption that easy prosperity will come our way."
For those of you who have been following how well Australia compares to other nations throughout the world, you may be interested in The Economists' world map of which nations are in recession. While it shows that we have avoided recession to date, unlike all other major advanced economies, it also highlights the severity of this global downturn.
Next week we have several data releases which will give us more information on monthly inflation, retail trade, commodity prices, performance manufacturing, job advertisements, house prices, business expectations and the labour force. The RBA will also meet on Tuesday to consider the stance of monetary policy. I'll write to update you on all of this, next week.
Treasurer of Australia
Sunday 2 August 2009