Statement 1: Budget Overview
International economic outlook
No country has been immune from the global financial crisis. The world economy is expected to contract by 1½ per cent in 2009 — the first annual contraction in six decades. Having borne the initial brunt of the crisis, virtually every advanced economy is now in recession. Advanced economies are collectively expected to contract by 3¾ per cent in 2009.
Global financial market stress intensified rapidly in September 2008 to levels unseen since the early 1930s. The last quarter of 2008 witnessed the sharpest and most synchronised contraction in global economic activity on record. In every major economy, GDP outcomes in the final quarter of 2008 were worse than already pessimistic expectations. Virtually every advanced economy fell into recession or recorded a decline in GDP late last year.
While the prospect of a rapid intensification of financial market stress had earlier been identified as a clear downside risk to the global outlook, the speed and severity of the recession exceeded any event in living memory, surprising forecasters worldwide. For example, in April 2009, the International Monetary Fund revised down its growth forecast for the world economy for the fifth time in seven months.
The contraction in the global economy has continued into early 2009, with plummeting industrial production and depressed household spending in many economies. World trade is expected to shrink by 11 per cent in 2009 — the largest fall in the post‑war era. Labour markets around the world have deteriorated rapidly, with millions joining the jobless queues globally.
Australia's major trading partners are collectively expected to contract by 2 per cent in 2009. Deep contractions are forecast for our advanced trading partners, particularly Japan and the Newly Industrialised Economies of Asia (where the contraction is expected to be worse than that recorded during the Asian Financial Crisis). Eight of Australia's top 10 trading partner economies are expected to contract in 2009, with China and India slowing dramatically. China's forecast growth of 6¼ per cent is less than half the rate recorded in 2007.
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