It’s official – Australia in a 2-speed economy

Glenn Stevens - Governor of the Reserve Bank of Australia

The economic imbalance of Australia’s economy is official. Governor of the Reserve Bank of Australia, Mr Glenn Stevens had previously warned of the massive demand pull generated by Australia’s booming mining industry whilst the rest of the economy is stuck in the slow lane. Official employment figures from Access Economics for the year to the end of August 2010 showed that employment in the mining industry rose by 16% and construction by 3% as more workers are drawn to the resources boom. At the same time, more than 22,000 jobs were lost in manufacturing, down 2% in the past year and the arts and recreation sector, which takes in the embattled tourism sector, fell by 4.5%.

Whilst workers are flocking to the mining industry in droves, the high Australian dollar is pushing some of the nation’s most iconic industries to the brink.

It is not new the mining boom in the early to mid 2000’s has created more wealth in mining states like Western Australia. However, coupled with the high dollar as a result of the boom, firms which are exposed to the export market are severely affected as their products become less competitive in the international market.

John Haines, chief executive of Haines Group, one of the nation’s largest boatbuilders, says his manufacturing operation will soon switch to a four-day week.

“We are down 60 per cent and we are pulling back to a four-day week,” he said. “We are taking extended holidays over Christmas hoping that we might see some more work come in. I speak to a lot of our competitors, and they are all the same.” . The issue is complicated by cheap imports from the US. Mr Haines said a 6m Australian boat that would normally sell for up to $60,000, was facing competition from second-hand US boats selling for as little as $15,000. He said this would affect the market for years to come.

Brad Teys, the chief executive of Teys Brothers Holdings, which kills about one million cattle a year in Queensland and South Australia, said the high dollar was squeezing beef producers because contracts were written in US dollars. “I’d say it would be very marginal for them – their costs are increasing diesel power, fertiliser, water, rates and I’d say most people would be finding it very difficult in the cattle industry,” he said.

Graham Packer, whose Packer Leather makes the covers for Kookaburra cricket balls, said the company was being squeezed by a high dollar on the one hand and high interest rates on the other. It was looking at taking some production overseas and finding cost savings.  “We’re getting pressured to reduce prices as a result of our currency and our internal costs,” Mr Packer said.

“They don’t want to pay the increased prices and what the currency is doing to us, we are feeling a horrible squeeze. Between the banks and their wretched interest rates and their risk margins . . . and the high dollar, we are getting squeezed from both sides.” He said the company could survive with a dollar at US85c but at near-parity “you just keep believing that things will change”.

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