Senate Economics Legislation Committee, , 20:00 to 22:45
Secretary Jenny Wilkinson provides an overview of the global and domestic economic environment, highlighting inflation, interest rates, and geopolitical disruptions.
Topics: Energy prices, Climate change
Speakers: Jenny Wilkinson, Senator Lisa Darmanin
Jenny Wilkinson, Secretary of the Treasury, Ms. Wilkins Wilkinson. Do you wish to make an opening statement?
I do, Chair.
Please go ahead.
Thank you, Chair, and thanks to the committee for the opportunity to make an opening statement. Can I start by joining you, Chair, in expressing my deep sympathies for Dr. Haines and her family and for our shock around the horrific events of last week? The global and domestic economic environment remains as challenging as it was at my last appearance in front of you in June. Pressures are being felt across almost all economies through geopolitical disruption and uncertainty, through elevated inflation, increased demand for capital and tighter financial conditions. Australia also faces these global headwinds. While domestic activity has remained resilient, supported by private demand, and the unemployment rate remains low by historical standards. Inflation is above the target band. The effects of increases in interest rates are becoming evident in the economy, including in the labour and housing markets, which should assist in returning inflation to target. While higher bond yields will put upward pressure on the fiscal position, public debt and deficits are relatively low in Australia compared with other advanced economies. So turning to international conditions, with global pressures becoming more persistent, they are also becoming more difficult to absorb. This is particularly evident in global energy markets. The unresolved conflicts in the Middle East and between Russia and Ukraine continue to disrupt global energy trade routes and supply chains. Drawdowns of strategic and commercial reserves have provided a partial buffer to date, but inventories can't absorb supply disruptions indefinitely. Pressure is most acute in refined fuel markets, reflecting refinery shutdowns in the Middle East and Russia alongside reduced Chinese exports of refined fuels. Singapore diesel crack spreads, which have averaged a little over 10 dollars per barrel between 2017 and 2021 have averaged about 40 dollars per barrel so far this month. Shipping costs have also surged, with the International Energy Agency stating that the cost of transporting crude oil from the Middle East to Asia having climbed to more than five times its pre-conflict levels. This is adding to global inflation, with headline inflation across G7 economies increasing by around one and a half percentage points on average from the start of the year to September, and interest rates increasing around the world.