Global economy triggers contraction but Australia is better placed

Australia is not immune

As a result of the global recession, Australia's GDP is expected to contract by ½ of a per cent in 2009‑10. This is a smaller contraction than in all major advanced economies.

With the sharp contraction in our major trading partners, export volumes are expected to fall by 4 per cent in 2009‑10.

The largest terms of trade boom in six decades is now unwinding, taking around $35 billion each year out of the economy.

The drop in commodity prices and weaker demand are expected to cause a sharp fall in business investment, which is forecast to decline by 18½ per cent in 2009‑10.

Household wealth has fallen and confidence has been shaken dramatically. Despite these headwinds, consumption is forecast to contract by just ¼ of a per cent in 2009‑10, with the fiscal stimulus measures providing much needed support.

Rising unemployment

The most devastating impact of the global recession will be on the unemployed in Australia.

The unemployment rate is expected to peak at 8½ per cent in 2010‑11 before falling as the economy recovers. The global recession has resulted in job losses in most countries with many advanced economies expected to record double‑digit unemployment rates.

Revenues hit hard

The global recession has led to successive downward revisions to taxes since the 2008‑09 Budget, which together have reduced tax receipts by around an estimated $210 billion over the forward estimates to 2012‑13.

These revisions wipe out the tax receipt windfalls from the terms of trade boom since the 2005‑06 Budget.

In 2008‑09, the write down is expected to be $23 billion — the biggest downward revision since 1930‑31. In 2009‑10, estimated tax receipts have been revised down by $50 billion.