Good morning, it is great to be here with you in a room of such esteemed company. It is also a great pleasure for me to be speaking with you as Prime Minister Tony Abbott's representative.
Today I want to outline "The Context for Australia's G20 Presidency." It comes just days after the Prime Minister delivered his address on the G20 in Davos.
Australia assumed the presidency of the G20 last December. Throughout this year we'll be hosting around 4000 international delegates (along with 3000 media) at the most significant meeting of world leaders in Australia's history.
The presidency affords us a rich opportunity to shape and influence the issues that most profoundly affect global growth and resilience.
It's a weighty responsibility, but one Australia is well placed to accept.
This morning I want to give you the international and domestic context for our G20 host year, and briefly outline why the G20 matters to the world, to Australia, and to Australian businesses.
The history of the G20
Today, the G20 is the world's premier economic forum.
Back in 1997 when the Asian Financial Crisis gripped much of East Asia and raised fears of global contagion, the Group of Seven or 'G7' developed economies became conscious of the need to consult more broadly to determine economic policy directions for the global economy.
Out of this experience, the Group of Twenty Finance Ministers forum was created in 1999.
When Australia hosted the eighth G20 Finance Ministers meeting in Melbourne in 2006, under the theme of 'Building and Sustaining Prosperity', the G20 was focused on spreading the benefits of growth, which at that time seemed like a global paradigm that was here to stay.
Then in 2008, following the collapse of Lehman Brothers and the consequent stock market crash, the global economy experienced its most difficult period since the Great Depression of the 1930s.
This situation required the attention of leaders who could take urgent and decisive action, and commit to the exceptional measures that were necessary to support the global economy and stabilise financial markets.
The G20 acted effectively as a 'crisis manager' by:
- coordinating global action to address fundamental weaknesses in financial sector regulation, governance and architecture;
- securing critical agreement to a coordinated fiscal policy response;
- brokering IMF reform to enhance its legitimacy and increase its resources, providing a critical safety-net for the global economy; and
- mitigating against the risks of a global currency war.
In the years since the crisis, the G20 has continued to steer a path of economic recovery and reform.
As the Prime Minister has clearly stated, Australia's Presidency of the G20 will not be about leading a talk-fest. The Abbott Government will be striving to achieve real outcomes in order to promote global growth.
The global economic context
I'd like to turn now to the current global context in which we'll be hosting the G20.
It's more than five years since the peak of the Global Financial Crisis, but the recovery since then has been weak.
And last year was particularly disappointing, with global growth at its weakest since 2009.
As we enter 2014, there's both hope and caution for the global economy.
Hope, because we may have turned the corner; and caution, because we know we're not yet out of the woods.
Global growth is expected gradually to improve through 2014 and 2015.
And underpinning this are welcome recoveries, of differing extents, in the advanced economies.
In the United States we're seeing signs of recovery, which have been given a vote of confidence with the US Federal Reserve's decision to wind back its asset purchases program.
But this recovery is long overdue, and remains the slowest US recovery of the post WWII era, with employment levels yet to return to pre-crisis peaks.
In the euro area the recovery is weak and uneven, but it follows one and a half years of contraction. And, as with the US, the positive news of the last year has been most welcome.
Still, jobs also remain a concern, with unemployment at record highs. And weak inflation has made deflation a real risk to the outlook, an 'ogre that must be fought decisively', as the IMF recently observed.
Any re-escalation of the euro area crisis, whether it comes from fiscal concerns or the region's troubled banks, remains one of the key risks to the global recovery.
In Japan, we are seeing encouraging signs – under the Abenomics or 'three arrows' policy agenda, Japan is a country determined to exit from years of deflation. Maintaining the political commitment to reform will be crucial to ensuring that a recovery there becomes self-sustaining.
Indeed this is the case for the US and Europe too.
While advanced economies are leading the good news of late, emerging markets remain the engine room of global economic growth.
The IMF projects emerging and developing economies will account for around three quarters of global growth to 2018. And Treasury's long-term projections indicate that this trend may well continue out to 2030.
In China, growth rates closer to 7 per cent will likely be the norm in coming years, as its economy undergoes inevitable - and necessary - structural changes.
The structural shifts in the Chinese economy will have implications here at home, and we will no longer be able to rely on rapid growth in the resources sector.
The rising Asian middle class will of course bring incredible opportunities in services and high-end goods, but our success here is not something we can take for granted.
Outside China, we have seen a number of emerging markets slow, reflecting tight financial conditions and structural impediments to growth and investment.
With advanced economies recovering and a return to more normal times, countries can focus on developing good fundamentals – good institutions and opportunities – to attract investment.
This is particularly important in our own region, where the normalisation of US monetary policy has seen capital outflows and currency depreciation in India and Indonesia. Nevertheless, the shift in global economic weight from west to east won't be halted by the bouts of volatility that we have seen in recent times.
Instead, this highlights the importance of having sound macroeconomic policy settings and robust institutions to help withstand crises and smooth adjustments.
To re-iterate the Prime Minister's message at Davos, it is important for Governments everywhere to promote sustainable, private sector led growth and employment – and to avoid government-knows-best action for action's sake.
Globalisation provides both opportunities and challenges. For instance, on the tax front arrangements have not always kept up with the rise of services and the pervasiveness of digital technologies.
The Prime Minister expressed the aspiration in Davos that there is a frank leaders only discussion in Brisbane about the biggest issues we face, including digitalisation and its implications for tax, trade and global integration.
In relation to financial regulation, work will always be ongoing. We need to ensure the reforms in train are finalised and that financial systems meet the growth needs of the world economy.
On infrastructure, Australia has already announced reforms to improve the effectiveness of Infrastructure Australia and to encourage State governments to recycle capital by selling existing assets to finance investment in greenfields infrastructure.
The G20 provides an excellent forum to bring together policy makers, financiers and builders to identify practical ways of increasing long-term infrastructure financing.
The domestic economic context
Australia is likely to remain a bright spot among advanced economies.
We have 22 consecutive years of growth under our belt.
And we're well placed near some of the emerging markets that remain the dominant contributor to global growth.
Indeed, over the next five years, Australia's real GDP growth is expected to outperform that of every major advanced economy outside the US.
But with the global recovery, the experiences and challenges faced by individual countries will be increasingly different, so it's worth reflecting on some of our own.
Similar to many economies, ours is undergoing a period of transition: from growth driven by resource investment to growth driven outside the resources sector.
It is underway, but it is slow, and we expect below-trend growth over the next two years.
The Abbott Government is actively working to reduce the burden of red tape in Australia that has put a brake on our economy for so many years. With our target of reducing red and green tape by $1 billion per annum we are working in partnership with the private sector to lift our productivity growth.
It is important to note that this applies across the economy – from the big end of town, to small business owners. The focus on the engine room of our economy – small business – is being successfully led by my colleague the Hon Bruce Billson.
The resource investment boom is at or near its peak, and while resource extraction and export will increase, this phase won't support as many jobs as the construction phase, and we still need to see growth in non-resources sectors pick up in order to meet the shortfall.
The unemployment rate is expected to drift up to 6 and a quarter per cent by mid-2015.
Wage growth has slowed and is expected to remain subdued, and this will be an important adjustment mechanism for supporting employment growth as the economy transitions.
Another positive adjustment is the fall of the Australian dollar since its peak in July 2011 of US$1.11, which helps trade-exposed industries that have been under pressure from the high dollar.
These adjustments, along with significant support from monetary policy, are expected to encourage activity in the non-resources sectors, helping to support growth in 2014-15 and beyond.
Investment outside of the resources sector remains soft. There have been some positive signs, like a recent improvement in business conditions, rising to a two and half year high.
However, with capacity utilisation remaining below its long run average, it is expected to be some time before businesses significantly increase their level of investment.
New housing construction is recovering, but more slowly than in past cycles.
Consumer confidence is above average, but it remains to be seen if this will be sustained. Consumers have been quite cautious since the global financial crisis, and have been saving more.
At the same time that the falling terms of trade start to detract from national income growth, our ageing population will mean lower levels of workforce participation. These factors suggest that, if labour productivity were to grow at its long term average, gross national income per capita would grow by around three quarters of a per cent per year on average over the decade ahead. This would be much less than the two and a quarter per cent annual growth that Australians are used to.
Absent elevated terms of trade, future growth in Australian material living standards will be determined by productivity growth.
Indeed, to achieve per capita income growth in line with its long term average, we would need sustained labour productivity growth of around 3 per cent, which is in excess of what we have averaged over any decade in the past, and double the rate achieved over the last decade. A concerted, persistent reform effort is clearly required.
This is not just an issue for Australia; it's common to other advanced economies. For example, the euro area economies and Japan would benefit from reforms to lift productivity and thus living standards, including in the face of ageing populations.
Importance of G20 to Australia
With these challenges looming large, the G20's focus on jobs and growth could not be more relevant.
It matters to Australia to be at the top decision-making table. We can influence the global agenda, secure better outcomes on key policy issues to promote a secure and stable economy, smooth the changes in geo-economic and political weight and so provide better outcomes for all Australians.
It's important to Australia that the G20 itself prospers. If it doesn't, we risk being cut out of important discussions. Australia was not part of the earlier incarnations, the G7 or G8. Any move away from the G20 will fragment the international economic architecture that has served us well, and that has brought Australia to the table in the last five years.
Hosting the G20 in 2014 gives Australia a valuable opportunity to influence the economic policies of the major economies of the world and contribute to a healthy, growing and resilient global economy.
Australia's G20 agenda is based on two key themes that are directly relevant to business:
- Promoting stronger economic growth and better employment outcomes; and
- Making the global economy more resilient and able to deal with future shocks.
There is a direct link between the focus of the G20 and the Government's ambitions for Australia. We are particularly focused on reducing barriers so Australian businesses can invest, create jobs and participate in the global economy through trade.
Our commitment as a Government to doing this can be seen through our successful conclusion of a free trade agreement with South Korea and we are also working on bilateral agreements with Japan, China, India and Indonesia as well as plurilateral ones such as the Trans-Pacific Partnership.
The Prime Minister will use the G20 Presidency to promote free trade and he has called for the roll back of protectionist measures put in place since the global financial crisis, supported by domestic reforms that promote global engagement.
We also want to make it as easy as possible for countries to attract investment dollars to build the infrastructure they need.
Importance of G20 for business
A fundamental principle of our G20 agenda is that growth must be led by the private sector.
As the Prime Minister said in Davos last week, "A strong economy is … one spontaneously generating its own growth. After all, government doesn't create wealth; people do, when they run profitable businesses."
The key to a strong and resilient global recovery is a thriving private sector.
At the moment, weak demand, uncertainty and dim prospects for future growth are undermining the private sector's willingness to invest, create jobs, develop new trade links and enter new markets.
The G20 has an important role to play in returning the global economy to a sustainable growth path by fostering an environment that reduces uncertainty and encourages businesses to invest.
G20 leaders will unite this year around a common purpose to improve global growth, resilience and confidence, and will remain vigilant and proactive in supporting the global recovery.
The G20's coordinated approach to implementing policy is critical for restoring business confidence and boosting consumer demand.
As President we will be asking countries to put forward comprehensive growth strategies in 2014 to lift global growth. These growth strategies have significant potential to increase trend growth, employment, productivity and investment.
The success of the G20 in achieving its goals will depend on how the private sector responds; and equally, the success of the private sector will depend in large part on how effectively the G20 can facilitate international cooperation and reach decisions in the interests of all.
By any measure, our G20 host year is an exciting and significant moment in our history.
It's an unprecedented opportunity for us to lead and influence the global economic community at a critical time.
We welcome this opportunity, and look forward to the work and the rewards it promises for Australia and the world in the year ahead.