Josh Frydenberg joins me now. He is the Treasurer of Australia, he’s in his job, about five weeks now and we’re very glad that he could join us. And I bet you’re very happy to be at this meeting. You said you had an interesting conversation with US Treasury Secretary Steven Mnuchin, now Australia, trade is all about trade.
What did you have to say about that? What did he have to say?
Well, nice to be with you Kathleen. Well, certainly Australia is trade exposed, we are a capital importing country, we have the fifth most traded currency in the world and we have a real interest in a free, open and rules based trading system.
So, I had a really great conversation with the US Treasury Secretary, he knows how trade exposed Australia is, he knows that China is our number one trading partner and the United States is our number one investor.
So, I just made it very clear to him, as I’ve done both publically and privately in all the meetings that I’ve had, that we need to see cool heads prevail, we don’t want to see an escalation in some of the trade tensions between the United States and China and we want to see the WTO be the preeminent forum for resolving trade disputes.
Well, since you mentioned the WTO, as soon as the Trump team lodged it’s complaint at the WTO over intellectual property, Japan and the EU jumped right in, so clearly this isn’t just a US complaint. Where does Australia stand on that and how crucial is that to, you know, solving this puzzle? Putting the key in the lock?
Well, the WTO reform agenda is one where the G20 can play a really constructive role and that’s something we’re talking to counterparts here at the meeting. At the end of the day free trade means more jobs, free trade means more investment and free trade means higher economic growth. That’s Australia’s story, that’s the story of the world.
Trade volumes are up and we’ve seen new partnerships, new agreements, like the Trans Pacific Partnership that Australia has helped lead.
So, Josh, how big of a threat to Australia’s economy and the outlook for the economy moving ahead if this- cooler heads don’t prevail? At least not immediately, and this continues and it escalates and it lasts. What’s the risk?
Well, the first thing I’d say Kathleen is we haven’t seen a large macroeconomic impact of the trade tensions to date. It’s been confined to about 2 per cent of world trade. Now, clearly it’s in no one’s interest, Australia included, for that to expand.
That being said, the Australian economy is growing strongly, has good fundamentals and has good momentum. We grew at 3.4 per cent through the year and that is higher than any G7 country, that’s indeed higher than the OECD average of 2.5 per cent.
We have a AAA credit rating from all three rating agencies, Moody’s, Fitch and S&P and we’ve just released the lowest budget deficit in a decade and unemployment is at its lowest level in six years. So, the Australian economy is strong, will continue to be strong. At the same time, the global economy is strong. You heard from the IMF, 3.7 per cent real growth. That’s a good number. But we can’t put that at risk with increasing trade tensions.
You know, one of the topics of discussion here has been emerging markets and federal reserve rate hikes and the spill-over effects. It seems to be for Australia, the head of the RBA has already signalled that maybe the spill-over effect of fed rate hikes is a welcome one because if the dollar weakens- and the Australian- the dollar strengthens and the Aussie dollar weakens that is potentially good for Australia.
Are you looking- would you welcome an even weaker Aussie dollar?
We have a floating dollar and it has moved around during the height of the mining boom and was well over parity with the US dollar, now it’s around 70 US cents. It has gone lower in the past but the dollar will be what it is. We as a Government don’t seek to impose on the movement of the dollar and monetary policy is run by the Reserve Bank.
We have a cash rate which has stayed pretty stable at 1.5 per cent for some time. What we are focused on at this meeting though, Kathleen, is if the US dollar appreciates, then there are emerging economies, which will see the cost of servicing their debt, US dollar denominator debt, go up.
We’ll also see capital outflows from some of those economies into the US as they chase higher bond yields. They’re some of the things that we need to watch out for and we’re also watching what’s happening in the Argentinian and the Turkish economy because we obviously want to see some of those challenges confronted.
So, when you say it’s something ‘we’ have to watch, are you referring to…
Okay, how about the fed reserve?
Well, look, it’s not for me to give advice to the Federal Reserve nor to the American Government. We have a wonderful relationship with the US and we do acknowledge they have some legitimate concerns in relation to the trade space. And I’ve said that publically.
But what we want to see is continued good growth in the economy. We want to see the G20 play and important role in the financial reform agenda, as it’s done in the past, and Australia sits at the top table as the 13th largest economy in the world, we are happy to play our part.
Quick, quick final question because I know you’re having a bilateral coming up with Japan’s Finance Minister tomorrow. He’s one of your Asian neighbours, really quickly, what do you expect to discuss with him and what do you want to get out of that?
Well, they’re a key trading partner for Australia and a great strategic partner and friend as well, so I’ll just take the temperature on what the Minister is seeing in the global economy, how he’s seeing recent market volatility.
My view about recent market volatility, Kathleen, is that you’re seeing the ups and downs. The market is digesting the potential for high US interest rates, the market is digesting some of these trade tensions, so it’s reacting in that way.
But let’s keep our head, let’s be reassured that the Australian economy is strong, that the global economy is strong and that we have learnt many lessons from the Global Financial Crisis and as a result our financial system is more resilient than it was a decade ago.
Well, Josh Frydenberg, I would say five weeks into the job you’ve hit the ground running, and what an interesting time to take over this job. Thank you for joining us.
Good to be with you, thanks Kathleen.