The global financial system is experiencing its most significant upheaval since the Great Depression.
More than 25 banks around the world have failed or been bailed out. Global stock markets have suffered significant losses.
The crisis has buffeted confidence around the world and is contributing to a serious slowdown in the global economy.
The International Monetary Fund now expects growth of less than 1 per cent in six of the world's largest developed economies next year.
This will be the slowest growth in the advanced economies for over a quarter of a century.
Australia is not immune from these developments, but we are in a much better position to weather the storm than many other countries.
Actual
Forecasts
2006
2007
2008
2009
World
5.1
5.0
3.9
3.0
Advanced economies
3.0
2.6
1.5
0.5
United States
2.8
2.0
1.6
0.1
Japan
2.4
2.1
0.7
0.5
Euro area
2.8
2.6
1.3
0.2
Major advanced economies (G7)
2.7
2.2
1.2
0.1
Australia
2.7
4.2
2.5
2.2
Figure 1 - IMF Global Growth Forecasts
Source: October 2008 IMF World Economic Outlook
In the May Budget, the Government was acutely aware of the risks posed by turbulence in global financial markets.
The Budget forecast that problems abroad would slow the Australian economy and impact on employment. This was against the backdrop of already high domestic interest rates and inflation.
In recent weeks the global financial crisis entered a new and dangerous phase, with inevitable consequences for the Australian economy.
The Rudd Government is determined to take decisive action to strengthen growth and protect Australians from the fall-out from the global financial crisis.
The Government has moved quickly to alleviate pressures in the Australian financial sector through its guarantee to Australian depositors and wholesale funding to ensure it remains globally competitive.
The Government is working closely with other governments around the world to address the global financial crisis.
The Government is now taking decisive action, delivering a $10.4 billion Economic Security Strategy to strengthen the Australian economy and support Australian households through these difficult times.
The package specifically bolsters recent weaker growth in household consumption and housing, and provides much-needed assistance to Australian pensioners and families.
The Government is also accelerating the implementation of projects to be funded through the three Nation Building Funds announced in the Budget to strengthen our economy.
The Government took the tough decisions in the Budget to build a strong surplus to act as a buffer in an economic slowdown. This is now providing the flexibility to respond to the dramatic deterioration in the global economy.
The Economic Security Strategy will complement the Reserve Bank's recent moves to reduce official interest rates. It also builds on the measures the Rudd Government announced in the 2008-09 Budget.
Treasury advises that the Budget will be in surplus after these measures. The Government will publish a full budget update in the Mid-Year Economic and Fiscal Outlook to be released within a month.
All advice currently available to the Rudd Government is that the Australian economy will continue to experience positive economic growth.