Australia’s falling currency will bolster manufacturing and improve export returns as global prices for commodities such as iron ore and coal slump, Australian Treasurer Chris Bowen said.
“It does provide some support to manufacturers, and exporters in particular, and that is a good thing,” Bowen said in an interview broadcast by Sky News yesterday.
He replaced former Australian treasurer Wayne Swan on June 27 after a ruling Labor Party reshuffle saw Australian Prime Minister Kevin Rudd assume office.
Australia’s dollar has fallen 13 percent over the past three months, the worst performer among 31 major currencies, hitting its lowest level since 2010 on Wednesday.
The decline offset a drop in the country’s terms of trade amid China’s weakening demand for commodities, which may curb Australia’s economic growth and reduce government revenue.
“There are challenges for the Australian economy,” Bowen said. “The terms of trade have fallen since the budget. Against that, the Australian dollar has come down, so there’s a countervailing impact.”
The Aussie bought US$0.9067 at the close in New York on Friday, down from this year’s peak of US$1.0599 in January.
There are early signs that the currency’s decline may be assisting a recovery in parts of the economy, Bowen said, citing the Australian Industry Group’s performance of manufacturing index reading for last month, which rose to its highest point since February last year. The gauge stayed beneath the 50-point mark, indicating contraction.
Falling iron ore, gold and coal prices will dampen nominal economic growth and government revenues, Bowen said.
Still, he is maintaining the spending plans outlined in Swan’s May budget, which forecast an end to deficit in 2015 or 2016.
“The appropriate macro settings are the current macro settings” and attempting to return to surplus any earlier “would be a judo chop to the economy,” he added.
Bowen ruled out any increase in sales tax and said the government faces “constrained fiscal circumstances” that may limit initiatives such as boosting small businesses.