Today's economic note comes to you from London, where I've been meeting with my fellow G20 Finance Ministers before I head to India for more economic meetings. I'll get into those details a bit later, but first up I must report the encouraging news we received on Wednesday with the release of our National Accounts for the June quarter. They showed the Australian economy has not only been the best performing advanced economy over the past year, but also the only advanced economy to record positive growth over this period. When you go through each of the components making up our GDP outcome, you quickly see how well the community has backed in the Government's stimulus; supporting jobs and growth during this global recession. You also quickly see the ongoing challenges we continue to confront as a nation in terms of business investment and our terms of trade.
Australia's National Accounts showed GDP rose by 0.6 per cent in the June quarter. This is a remarkable result given the fragile state of the global economy. Stimulus has meant that Australia has continued to avoid a technical recession – going forwards while the major advanced economies have all gone backwards. Indeed, Treasury estimates that without our stimulus measures, GDP would have fallen by around 0.3 per cent over the three months to June. This week's Fact of the Week comes from the yearly GDP: over the year to the June quarter, the Australian economy grew by 0.6 per cent. Treasury estimates that were it not for our stimulus, we would now be in our third consecutive quarter of negative growth, with the economy having contracted 1.3 per cent over the past 12 months.
The solid performance of the Australian economy comes at a time of continuing weakness in many parts of the world. Over the past year, the US has contracted by 3.9 per cent, the Euro area by 4.7 per cent, the UK by 5.5 per cent, and Japan by 6.4 per cent. These figures highlight just what challenging conditions we're up against, and really put Australia's growth of 0.6 per cent into perspective.
Household consumption spending rose by 0.8 per cent in the June quarter, underpinned by the Government's cash stimulus payments. The increase in spending by households contributed 0.5 of a percentage point to Australia's quarterly GDP growth.
New private business investment rose by 2 per cent in the June quarter. As discussed in last week's economic note, machinery and equipment investment was significantly boosted by our Small Business and General Business Tax Break. Treasury estimates that without our stimulus support, new business investment would have contracted over the three months to June, instead of growing by 2 per cent. However, even after this quarter's positive outcome, new business investment is still 0.9 per cent lower than what it was a year ago. This figure serves as an important reminder of the heavy toll the global recession has taken on business investment.
The weakness in private investment underscores the importance of the Government's nation building infrastructure investments. Public investment rose by 0.8 per cent in the quarter, on the back of the initial stages of the Government's infrastructure stimulus.
The weak global economy is continuing to have a substantial impact on Australia's export sector. While export volumes increased by 1 per cent in the June quarter, supported by increased demand from China, export prices have been hit hard, falling 15.8 per cent in the three months to June. This is the largest quarterly decline in export prices since records began in 1959, and has stripped nearly $11 billion from export earnings in the quarter. The commodity price index released by the Reserve Bank last week showed commodity prices have now fallen 29.1 per cent over the past year.
The decline in export prices drove Australia's terms of trade down 7.4 per cent in the quarter. Our terms of trade have now fallen by 11.6 per cent over the past year, and continue to represent a major challenge for the Australian economy as the global recession plays out. The decline has led to lower nominal GDP – which fell by 1.5 per cent in the quarter, the biggest quarterly fall since 1961 – and lower incomes. Over the three months to June, corporate profits fell by 6.2 per cent, gross mixed income fell by 1.4 per cent, and wages and salaries fell by 0.3 per cent.
Every single Australian has a stake in making sure the world comes together and remedies the regulatory shortfalls exposed by the global financial crisis. This weekend's meeting of G20 Finance Ministers is so important because our own economic prospects will suffer if the rest of the world fails to reform. There can be no return to �business as usual' for the international financial sector � a point I made in this Wall Street Journal article last week. In the lead-up to this month's G20 Leaders' Meeting in Pittsburgh, the Prime Minister and South Korean President Lee Myung-bak also discussed the new challenges requiring leadership from the G20 in this Financial Times article.
I have been meeting with my fellow G20 Finance Ministers in London as we prepare for the G20 Leaders' meeting in Pittsburgh later this month. Finance Ministers agreed to fully implement their stimulus measures designed to support growth and jobs, given the ongoing fragile state of the global economy and the difficult path ahead.
We have made significant progress in strengthening the global financial system and have delivered additional resources to strengthen the International Monetary Fund, but further reforms are still required. Ministers also agreed to begin developing coordinated exit strategies for the extraordinary policy measures that have been introduced across the G20 � but stressed that this should not be implemented until recovery is firmly secured. While we have made much progress through the G20, the key message out of today's meeting is that the job isn't finished yet.
In the coming week, we will receive retail trade and housing finance figures for July, business confidence data for August, and consumer sentiment figures for September. But the most important release next week will be Australia's labour force figures for August. We were reminded of the brutal impact the global recession is having on jobs around the world just a few days ago, when the US reported a bigger-than-expected increase in unemployment in August, up 0.3 per cent to 9.7 per cent.
Here in Australia, the National Accounts paint a picture of a very resilient economy that still faces big challenges. The Government's economic stimulus is working to support jobs, build confidence, and invest in infrastructure for the future. The job's far from finished, but the prospect of a gradual pickup in private sector activity will allow the staged withdrawal of the stimulus to proceed from the December quarter this year, as foreshadowed in May's Budget. Many credible economists agree that ripping the stimulus out early would mean even higher unemployment and leave business in the lurch.
Treasurer of Australia
Sunday 6 September 2009