Our Opinion: 2014

Australia’s downturn

Australia’s July unemployment figures have just been announced – going from 6% to 6.4%. It is the highest level in a decade.

There are several reasons why Australia’s economy is slipping. Commodity exports have slowed as China’s politicians attempt to encourage consumption at the expense of commodity-intensive investments. The price of Australia’s top export – iron ore – has slid by 30% according to Chris Whatling of Longview Economics.

The mining sector has boomed in recent years. However, that drove the Aussie Dollar to record highs (gaining more than 40% against the US Dollar between early 2009 and 2012). It has since fallen back but this strong currency hurt both tourism and manufacturing. In fact, manufacturing output in Australia is now lower than in 2002. It will fall further since all of the country’s foreign carmakers – including Ford and Toyota – have been forced to relocate due to high local costs.

It is hard to think that consumer spending will help. Debt stands at 140% of household income. As for the property market, the OECD feels it is one of the world’s most overvalued markets and falls possible of between 30% and 50%.

I agree with Watling’s opinion that the Aussie Dollar has further to fall.

Australia hasn’t had a recession since 1991. Seemingly endless demand from China for Australia’ resources, along with high government spending, kept the economy afloat during the global financial crisis. But now, Australia’s luck may be running out.