Impact of Greece 'minimal' and China forecasts stand, Joe Hockey predicts
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Version 0 of 1. Joe Hockey is standing by his budget forecasts for China’s economic growth and predicts the upheaval in Greece will have a “minimal” impact on Australia. The treasurer sought on Tuesday to reassure Australians about the limited domestic implications of China’s volatile stock market and Greece’s tentative but “encouraging” agreement with European creditors. “So far as I am concerned and the Treasury is concerned, our budget forecasts for the Chinese economy remain unchanged. We expect growth of 6.75% this year, 6.5% next year and 6.25% the year after, so our relationship with the Chinese economy remains unchanged by recent volatility,” Hockey said after briefing cabinet colleagues on the developments on Tuesday morning. The impact on Australia of the developments in Greece is minimal “The impact on Australia of the developments in Greece is minimal. Having said that, we can never be complacent and it’s a reminder that we almost always must be prepared for the unexpected events that may occur as a result of increasing volatility in the global economy.” Hockey’s comments were a more substantial response to the overseas economic developments than prime minister Tony Abbott offered in response to questions from reporters last week. During a visit to a shopping centre in Sydney last Tuesday, Abbott stuck to his message about his government’s grocery code of conduct when asked whether he was concerned that problems in China and Greece could spread to Australia. “Again, I get back to the grocery code of conduct,” Abbott replied. “This [code of conduct] is about ensuring that we continue to have very strong local suppliers, best possible product at the best possible price so that we get the best possible deal for consumers – and if we do that we will avoid the problems that we see overseas.” Hockey’s press conference followed news from Brussels on Monday that the 19 eurozone leaders had reached agreement to keep Greece in the single currency. The treasurer said the successful negotiations were encouraging, although he noted that the Greek government needed to implement “a ferocious legislative program” in the next 48 hours and would need to receive bridging finance for a pending debt repayment. The 19 countries would need to endorse the terms of the final agreement. Hockey backed Greece’s continued place in the eurozone, saying it was “always going to be easier for Greece to undertake difficult but necessary reform when it has the support of the eurozone because without that support it would be a very, very lonely journey for the people of Greece”. He noted that the Greek government had agreed to undertake a program of privatisation and changes to the tax and pension systems that it had previously opposed. The treasurer sought to use these developments to bolster the Coalition’s case for budget spending cuts in Australia. “There’s a salient lesson here, not just for Australia, but for everyone, that if you don’t undertake the necessary reforms to get your house in order when you can, then ultimately the pain will be much more significant further down the track,” he said. Hockey said the poorest and most vulnerable people in the Greek community were paying the heaviest price “for the lack of reform over a number of years”. “Ultimately, as in the case of Greece, when you don’t undertake that necessary reform, it ends up being the most vulnerable, the most disadvantaged that pay the greatest price because the wealthiest people are able to take care of themselves,” he said. In relation to Australia’s biggest trading partner, Hockey said the Chinese stock market had dropped 25% in four weeks, but was now 18% higher than its low point last Thursday. “It is a very volatile market. It’s still 90% higher than it was 12 months ago,” he said. Hockey said he had talked to China’s finance minister, Lou Jiwei, in Beijing two weeks ago about the economic transition. The treasurer was assured “that they have significant capacity in both fiscal policy and monetary policy to address some of the challenges that may be faced over the next few years as the Chinese economy continues to undergo that transition from a heavy reliance on export and domestic infrastructure, to increasing domestic household consumption”. Hockey said the Australian government was also “watching carefully the iron ore price”, which influences budget revenues. He said iron ore had averaged $54 a tonne since May, compared with the budgeted price of $48 a tonne – conceding there was “some volatility in it”. Budget documents said the sharp falls in the iron ore price from a peak of $185 per tonne in 2011 were explained by a substantial increase in global supply coinciding with an easing in steel demand from China. Related: Business confidence nears two-year high as services take up mining slack Those documents warned of a “key risk” that China’s transition to a more sustainable growth model “may not be smooth, presenting changing demand patterns for Australian exports”. The treasurer said the lower Australian dollar would help exporters in general and the South Australian and Victorian economies in particular. “We remain vigilant and, as far as the government is concerned, our economic plan is on track,” he said. In May, the government predicted real growth in Australia’s gross domestic product would rise from 2.5% last financial year to 2.75% this financial year, building to 3.25% in 2016-17 and 3.5% in subsequent years. The budget predicted a deficit of $35.1bn in 2015-16, followed by deficits of $25.8bn, $14.4bn and $6.9bn in the following years. These figures represented a significant deterioration from the corresponding predictions in the 2014 budget. Several analysts – including the Grattan Institute – have argued the forecasts in the 2015 budget were overly optimistic. The former Liberal leader John Hewson suggested the government would not want to bring down another budget and therefore could seek an early election by about March next year. Asked if he wanted to deliver another budget before the next election, Hockey spoke in more general terms. “I’d like to deliver a number of additional budgets over the next few years,” he said. |