News / Asia

Australia's Economy Faces a Year of Challenges

Tourists take pictures in this long exposure photograph as the Sydney Opera House is lit with green lights during St Patrick's Day celebrations in central Sydney, March 17, 2010.
Tourists take pictures in this long exposure photograph as the Sydney Opera House is lit with green lights during St Patrick's Day celebrations in central Sydney, March 17, 2010.

Australia's resources-powered economy is facing a year of challenges.  Although the mining sector continues to soar, other industries - most notably manufacturing, tourism and finance - are shedding jobs in an increasingly two-speed economy.  Although Australia has managed to avoid the worst of the global economic crisis, the government warns that 2012 is likely to be a particularly tough year for employment.

Australia’s economy has been the envy of the developed world. But the "Wonder Down Under" is beginning to show a few cracks.

Strong currency

The strong Australian dollar is blamed for the loss of hundreds of jobs last month at Toyota in Melbourne, exposing the fragility of the country’s manufacturing sector.

"Shocking news for everybody, you know. For our families, you know, 350 people is really a lot," says a Toyota worker.

The Australian government says it is confident the economy will grow at a solid rate this year, although the Manufacturing Minister Kim Carr concedes that there will be some pain along the way.

The fact of the matter is that the high Australian dollar is causing great, great damage to our international markets, to our export program, because it is pushing the price up for Australian goods. And, as a consequence, the demand for Australian products is falling," said Kim Carr.

Mining boom

Australia avoided the worst of the global slowdown thanks to a mining boom fueled by sales of iron ore to China.  However, there are concerns that any easing of Chinese demand will cause problems.

"Australia is going to basically find that the global financial crisis that they thought they’d dodged is coming home to roost. Australia’s got problems on the commodity front through the Chinese slowing," said author and analyst Satyajit Das.

Das believes the soaring Australian dollar, which has doubled in value against its U.S. cousin in the past decade, is to blame for increased economic uncertainty.

"The high Australian dollar is obviously making things very difficult for manufacturers, for tourism, for health tourism, for educational services and we are now seeing signs of that in terms of the slackening demand for labor, particularly traditionally white collar areas, like in financial services," added Satyajit Das.

Higher unemployment ahead

Unemployment in Australia is at just above five percent. That figure is expected to rise this year. The non-mining sector is likely to suffer most. This week, 1,000 bank workers were told they were losing their jobs.

Fariborz Moshirian, a professor of finance at the University of New South Wales, believes Australia should not be so reliant on exports of commodities to China.

"There is no question that, if in China we are going to see a massive decline in economic activities," said Moshirian, "Australia is going to basically feel it very harshly simply because we don’t have a strong manufacturing or indeed banking sector to compensate for income losses associated with the mining boom. And, for that very reason [the] Australian economy requires a massive restructuring as we are benefiting from the mining boom so that our manufacturing, our financial services and our tourism industry will become more productive, more competitive and also our economy becomes more balanced rather than simply relying on one particular sector in the medium term." 

But the head of the New South Wales Minerals Council, Stephen Galilee, believes the resources sector will continue to underpin the economy for many years to come.

"People have been forecasting the end of the resources boom for many years now and the end of the boom is nowhere in sight," he said. "The impact of global uncertainty has the potential to slow the rate of growth of that boom. But we are optimistic that demand for our mineral resources will continue to increase across the decades ahead."

However, Australia’s miners are worried that a carbon tax will damage their international competitiveness and cost jobs. The levy will force many big polluters to pay for each ton of carbon dioxide they emit and is scheduled to be implemented in July.

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