Jodie Campbell (Bass, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. Will the Prime Minister update the House on the outlook for the Australian economy and recent commentary on the national accounts figures?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

I thank the honourable member for her question because it goes to what we have seen in the international economic data overnight. In particular, we have released data from the Eurozone. European GDP figures released overnight show that the 16 countries that make up the Euro area contracted by 2.5 per cent in the March quarter. This was the biggest fall in European GDP since records began in 1995. The fall in GDP was broad based with almost every component falling significantly. European consumer spending fell by 0.5 per cent in the quarter. This was the biggest fall in European consumer spending since records began. Household consumption contributed negative 0.3 per cent to European growth. These figures underline the severity of the global challenges we face. Every one of the major advanced economies is in recession—24 of the 30 OECD countries are in recession and 29 of the 30 OECD countries have experienced at least one negative quarter of economic growth.

Yesterday’s national accounts data showed that the Australian economy grew in the March quarter by 0.4 per cent. In particular, household consumption grew by 0.6 per cent in the quarter to contribute 0.3 per cent to growth. Household consumption grew in every state and territory in Australia. If consumption had been as weak in Australia as it was in Europe, detracting 0.3 per cent rather than contributing 0.3 per cent to growth, Australia would be in recession. Indeed, Treasury figures confirm that without the cash stimulus payments Australian growth would have been negative 0.2 and Australia would have been in recession.

It follows that the actions taken by the Australian government through its economic stimulus strategy and through its Nation Building for Recovery plan mean that we have stood in the breach while the private sector is in retreat. The performance in consumption growth numbers for Australia has been significant. I would contrast those again with what has happened with consumption in the Euro figures which I referred to before. I would also draw the House’s attention to statements from the market economists, including the Chief Economist of CommBank who said:

The Q1 readings provide some further evidence that economic policy is gaining traction in Australia. Consumer spending proves surprisingly resilient to the array of negatives at work, suggesting that the cash handout component of fiscal stimulus was effective. Today’s solid results suggest that fiscal and monetary policy stimulus has been overall effective in softening the Australian economic downturn. The cash transfer from the Commonwealth government to households last December enabled households to boost spending with a relatively healthy rise of 0.6 per cent in the quarter on quarter 1.

There have also been comments to a similar effect from RBC Capital Markets and from the economist at Deutsche Bank.

I would also draw the honourable member’s attention and the House’s attention to a letter signed by 21 Australian economists which was published yesterday in the Financial Review, among them Tony Cole, former Secretary to the Treasury; Max Corden, emeritus professor at John Hopkins University; Steve Dowrick, professor of economics at the ANU; Saul Eslake, Chief Economist of the ANZ Bank; Bernie Fraser, former Governor of the Reserve Bank of Australia and former Secretary to the Treasury; John Freebairn, professor of economics at the University of Melbourne; Stephen Grenville, former Deputy Governor of the Reserve Bank; and Nicholas Gruen, CEO of Lateral Economics. This is what the 21 economists had to say in relation to cash stimulus payments:

There is no more effective way to stimulate the economy quickly. The success of this measure can be seen in the relative strength of Australian retail sales compared with almost any of our peers.

Further, this is what the 21 economists had to say about debt and deficit:

… net debt will stay below 14 per cent of GDP compared with an average of over five times this in comparable countries …

… even after the stimulus, we remain within a very healthy margin of safety in our government’s reputation for economic prudence.

Deploying our strong balance sheet to use otherwise idle resources—or to put it more compellingly, deserted factories and unemployed workers—to build assets that improve our lives and our economy in the future, seems much more appealing; much more commonsensical than retreating into phobias.

These are the observations of these 21 economists. They are significant conclusions from mainstream economists and actually go to the heart of the responsible course of economic strategy which the government has embraced, which is a nation-building strategy for recovery.

Obviously, to implement a nation-building strategy for recovery, it is necessary, given a global economic recession, to engage in borrowings, in deficit and in debt, as are most other economies in the world. That is the responsible course of action. But we are in the business of talking the Australian economy up and building the Australian economy up by this composite of measures. I would contrast our approach again to the tactics employed by those opposite, which are to consistently talk the Australian economy down.

Again it is important to make sure that we have a strategy for the future which achieves the best and most positive growth performance for the Australian economy in the period ahead. We believe we are prosecuting that strategy on behalf of the nation. I commend this program for recovery to all members of the House.