Dr Martin Parkinson PSMSecretary to the Treasury

13 December 2011

A year in retrospect, a decade in prospect

Source: Part 1, 2010-11 Mid-Year Economic and Fiscal Outlook.

MYEFO 2010-11

The Australian economy is in a strong position … real GDP is now growing at around its trend rate … The global economy has recovered from recession faster than expected, but at different speeds across regions … Financial market conditions have improved since the sharp increase in market volatility and stress experienced in mid-2010 when the European sovereign debt crisis reached its peak.

Source: Part 1, 2011-12 Mid-Year Economic and Fiscal Outlook.

MYEFO 2011-12

International growth prospects have weakened markedly since Budget and the risks to global stability from the European sovereign debt crisis have intensified … The deterioration in global conditions has contributed to a weaker near-term outlook for the Australian economy than at Budget, with forecast gross domestic product (GDP) and employment growth both revised lower. Conditions are also expected to remain uneven, with the weaker global economy, the high Australian dollar and cautious household spending behaviour creating significant challenges for some sectors.

Note: The data series for 10-year Irish government bonds was discontinued by Thomson Reuters on 23 November 2011, with Thomson Reuters stating that there are no eligible 10-year government bonds that can be used to underlie the 10-year point on the Irish benchmark curve.Source: Thomson Reuters.

Chart 1:Euro area sovereign debt spreads(10-year sovereign spreads to German bunds)

Chart 2:Greek GDP and fiscal adjustment

Source: European Commission, Reserve Bank of Australia and Treasury.

GDP growth over 2011 and 2012 Consolidation measures 2010-2012

-10

-8

-6

-4

-2

0

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0

Dec-10 Feb-11 Jul-11 Nov-11

Per centPer cent

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25

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Dec-10 Feb-11 Jul-11 Nov-11

Per cent of GDP Per cent of GDP

Source: US Bureau of Economic Analysis and Thomson Reuters.

Chart 3: US recessions

Chart 4: US labour market

Source: US Bureau of Labor Statistics and Thomson Reuters.

93

94

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0 4 8 12 16 20 24 28 32 36 40 44 48

July 1974

July 1981

June 1990

February 2001

Months since peak in payroll employment

Index

January 2008(current)

Index

March 1980

Chart 5: US house prices

Source: S&P Case – Shiller and Thomson Reuters.

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110

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Apr-06 May-07 Jun-08 Jul-09 Aug-10 Sep-11

Index (April 2006=100) Index (April 2006=100)Index (April 2006=100) Index (April 2006=100)

20-city average

San Francisco

Detroit

Miami

Phoenix

Las Vegas

Chart 6: Tax receipt estimates

Source: Treasury

Chart 7: Government spending and revenue

Source: Treasury

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2000-01 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13 2014-15

Per cent of GDPPer cent of GDP

Underlying cash balance (RHS)

Spending

Total receipts

Chart 8: Regional distribution of unemployment

Note: Statistical Local Areas (SLAs) are standard small geographic regions in Australia. There are around 1,400 SLAs under the 2006 classifications. As the size of the labour force for SLAs varies from less than 100 to around 100,000, figures in the chart use employment outcomes weighted by labour force size. Regional distributions are smoothed using Gaussian kernel density estimation. For presentational clarity, distributions are over-smoothed with windows of 1, 1, ½ and 3/4 selected for Sep-1998, Sep-2002, Sep-2008 and Sep-2011.Source: DEEWR Small Area Labour Market database and Treasury.

0.00

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Share of Regions Share of Regions

Sep-98

Sep-02

Sep-11

Sep-08

Unemployment rate (per cent)

Dispersion

Average

Chart 9: Unemployment across the economy

Note: Each point on the scatter plot represents the weighted average and weighted standard deviation of regional unemployment for a particular quarter between Sep-1998 and Jun-2011. The weighted average unemployment rates for all SLAs differ slightly from those estimated in ABS 6202.0.Source: DEEWR Small Area Labour Market database and Treasury.

2

3

4

4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0

Dispersion

Average unemployment rate

Sep-03 (start of mining boom)

Sep-98

Jun-11

Mar-08

13

Chart 10: Projections of the global middle class by region

Source: Kharas, H and Gertz G, 2010, ‘The New Global Middle Class: A Cross-Over from West to East’ in C Li (ed), China’s Emerging Middle Class: Beyond Economic Transformation, Washington, DC, Brookings Institution Press.

0.0

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2009 2020 2030

North America Europe Asia Pacific Central and South America Africa and Middle East

Billions (persons) Billions (persons)

Dr Martin Parkinson PSMSecretary to the Treasury

13 December 2011

A year in retrospect, a decade in prospect