Australian Treasurer Wayne Swan said there was no “silver bullet” to ease pressure on trade--exposed industries hurt by a strong local currency.
Manufacturing output will increase by about 5 percent until 2020, which will be dwarfed by a 77 percent expansion in resources and 50 percent growth in construction, Swan said in a weekly economic note yesterday. Services will grow 38 percent over the next nine years, buoyed by demand from the Asian middle class for Australian tourism operators and education providers, he wrote.
Since 2005, which the central bank marks as the start of the current mining boom, employment in manufacturing has slid by about 6 percent, Australia’s Productivity Commission chairman Gary Banks said.
BlueScope Steel Ltd said on Monday last week that it would stop exports, shut a mill and a furnace as well as shed about 1,000 jobs after reporting a loss in the second half of the year. The nation’s largest steelmaker attributed the performance to a record-high Australian dollar and high raw-material costs.
“We shouldn’t pretend that there’s some silver bullet and that somehow the massive structural changes occurring can be stopped,” Swan wrote. “Although manufacturers are experiencing tough times, there’s no doubt in my mind that Australia will remain a nation that makes things. Like all sectors, however, it will change.”
Demand for Australian commodities including iron ore and coal is driving a boom in mining investment with projects worth A$430 billion in the pipeline (US$451 billion), Swan said.
That, along with low government debt and a strong banking sector, helped boost the local currency to as high as US$1.1081 on July 27, the strongest since it was freely floated in 1983.
“The high Australian dollar is putting pressure on certain sections of the Australian economy, particularly on manufacturing,” Australian Transport Minister Anthony Albanese said in an interview on Channel Ten yesterday.
Reserve Bank of Australia Governor Glenn Stevens has said the stronger currency together with a decline in consumption and higher savings may be Australia’s new economic reality, and the only way for industries to cope is to reverse a decline in productivity.
Australia’s unemployment rate unexpectedly jumped to an eight-month high last month as hiring stalled. The jobless rate rose to 5.1 percent, a government report showed on Aug. 11.
Swan pointed to a A$3 billion skills and training program as well as infrastructure investments as ways in which the government is hoping the address the varied pace of growth in different parts of the economy.
The government also plans a 30 percent tax on profit from coal and iron ore at companies including BHP Billiton Ltd and Rio Tinto Group.