Brett Raguse (Forde, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. Will the Prime Minister outline why decisive and early action is needed to respond to the global financial crisis?

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

Honourable members may be aware of statements from the United States overnight from the US National Bureau of Economic Research. This is the body that officially records recessions in the US and it announced overnight that the economy of the United States entered into recession in December 2007. The NBER dates recessions based on their analysis of economic activity, and the NBER committee noted that declines in major indicators like employment, manufacturing activity, retail sales and industrial production met the standard of a recession. A large factor is employment, and the United States has lost 1.2 million jobs so far this year.

Although the committee noted that the recession started in December, they went on further to note that events were getting worse. I quote from their statement of 1 December US time:

Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months.

This bad data from the United States has also been reflected in developments in equity markets in the last 24 hours. The Dow Jones industrial average dropped 680 points or 7.7 per cent. We have seen European stocks similarly affected. Overnight, they were lower, with the FTSE 200 down 5.2 per cent.

What we see here is an unfolding series of events: negative developments in global financial markets impacting on the real economy, in turn impacting back on financial markets—in this case, the equities markets. That is why action by governments nationally and through international coordination is necessary to turn back this tide.

In addition to the United States having officially entered into recession, according to the National Bureau of Economic Research, we have a large number of other economies around the world which have also entered recession. In the Euro area, that has been confirmed. Japan, Germany, Italy, Sweden, Singapore, Hong Kong and New Zealand, among others, are in recession. We see not only these economies entering into recession but also a large number of economies entering into budget deficits, with some 23 of the 30 OECD countries forecast to be in deficit in 2009, including the world’s three largest economies, the United States, Japan and Germany. On top of that, we see their unemployment data rising. In fact, unemployment is forecast to rise by eight million across the OECD in the course of 2009.

Australia is not immune from the global financial crisis, nor are we immune from the impact on our real economy. That is why in MYEFO we forecast downwards revisions as far as growth is concerned. We forecast that unemployment would rise in Australia. If recession deepens around the rest of the world, there is a grave risk that these figures could become worse. In responding to these adverse global and economic developments it is quite important to be clear cut about the fact that there are no easy solutions and no quick fixes. This will be a long and drawn out crisis.

But this government’s policy is clear. It is about two things: firstly, stabilising Australian financial markets and, secondly, taking whatever action is necessary to continue to support economic growth and jobs into the future in order to protect Australia to the greatest extent possible from the impact of the global financial crisis. On the question of the stabilisation of financial markets, those measures undertaken by the government include the bank guarantees that we have provided, including bank guarantees for more than 15 million deposit accounts as well as the term funding guarantees for our banks, building societies and credit unions—a necessary action in order to stabilise the Australian financial system.

Of course, the second objective of government policy in these difficult global economic circumstances has been to continue to support growth and jobs. That has underpinned the government’s Economic Security Strategy. That is why in October we released a $10.4 billion stimulus package capable of supporting additional employment of some 75,000 jobs in the economy. Part 2 of the government’s Economic Security Strategy has been the support that we have offered to the car industry of some $6.2 billion, also necessary to support long term the 200,000 jobs in the Australian automotive sector which depend on the continued vitality of that sector, which is under grave stress.

Part 3 of the Economic Security Strategy was what the government did in concert with local government with our $300 million package of injection into local economic activity and jobs creation through the first meeting of the Australian Council of Local Government held in Canberra. Part 4 was the agreement reached with premiers and chief ministers in the Council of Australian Governments meeting held most recently in Canberra last weekend, injecting $15.1 billion—again an injection necessary for long-term reform but also an injection necessary to continue to support growth and jobs, an injection itself capable of generating a further 133,000 jobs. Part 5 of our Economic Security Strategy will be our nation-building agenda which we will proceed to announce over the coming months.

The government’s course of action in responding to these adverse international economic circumstances is clear cut. We have seen the impact of recession in the United States. We have seen the impact of recession across the OECD, including in the world’s three largest economies. We see the impact that has on their own budget circumstances. We see the impact that has, in turn, on employment. The year 2009 will be a tough year ahead. The government’s economic strategy is clear. The global financial crisis will affect Australia’s growth and jobs. We are concerned that the global economic recession will further impact negatively on Australia’s projections in both these areas, but the government strategy is clear cut and the government is resolute in implementing that strategy for the future.