Swan: Economic crisis can be managed

Australian Business members and guests gathered in London on 17 October for a candid lunch with Australia’s Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP.

The Deputy Prime Minister’s speech entitled, No Excuses: The European Crisis of Confidence addressed the current issues of volatility and uncertainty in global markets.  He called on European leaders to act decisively and with a boldness of resolve reminiscent of the 2009 London Summit where G20 Leaders agreed on the economic rescue package that saw an injection of $5 trillion in fiscal stimulus to the world economy and $1.1 trillion in resources to international financial institutions.

European connections
Mr Swan spoke of the historical importance of the European Union and the progress it has made over the past 65 years in forging peaceful connections between its great powers. He stressed that this good and honourable work is important and one of the reasons so many around the world want the European idea to succeed.

The Deputy Prime Minister also addressed the connectedness of Australia and Europe. Australia’s European sensibility influences every aspect of the Australian community, economy included, and thus despite the robustness and growth the Australian economy is showing we must not underestimate the impact of the European global situation on the confidence of the Australian market.

Asian Century
Meanwhile, Australia’s tyranny of distance from the northern hemisphere is now one of its greatest assets as the global economic weight shifts from West to East. The Hon Wayne Swan pointed out some key facts about Australia’s pivotal role in the growing Asian economy:

• In 1990, just under one quarter of world economic activity fell within 10,000 km of Australia
• By last year it had risen to more than one third
• And by mid-century nearly two thirds of global production and consumption will be taking place within 10,000 kilometers of Australia

Australia’s traditional trading relationship with Europe and the UK has declined whilst trade with Asia has increased six fold, to represent nearly two thirds of all traded goods.

Australian financial institutions are increasing lending to Asia and are in the sound position of negligible exposure to troubled European markets and no exposure to sovereign debt in Greece.

The Chinese economy is driven increasingly by infrastructure and business investment focused on domestic factors -  maintaining strong commodity prices for iron ore and coal, and an appetite for natural resources that represents a record pipeline of business investment worth around $430 billion, with 40% of these projects already at an advanced stage. 

Domestic strength
Some sectors of the Australian economy remain under pressure from a cautious consumer, the strength of the dollar and ongoing global uncertainty. However solid rises in retail sales (the strongest back to back performance in nearly two years) are encouraging signs for the ongoing strength of the Australian economy.

The Deputy Prime Minister discussed the interesting record set by The Gillard Government -  winning more support for legislation in the House of Representatives in the first 12 months of this term than any first term government. This is evidenced by the passing through the House of the legislation to establish a carbon price in Australia – representing the most significant environmental and economic reforms in a generation.

No excuse to fail
The Deputy Prime Minister concluded by reiterating his message of the G20 leaders to adopt a program sufficiently bold and comprehensive to convince markets that the crisis can be managed. He stressed the importance of job growth in the US and the urgent need to regain confidence of the markets. He reminded the audience that the crisis of 2009 and that of 2011 are very different beasts -  but the lessons learned from this recent history means the world is better placed to manage this crisis and deliver an effective plan of action.