Australia needs non-mining industries to pick up the economic slack as a record resource investment boom crests, Treasurer Wayne Swan said, while acknowledging the local currency has complicated the task.
“This transition won’t be seamless, and recently the high dollar has been making it harder for firms in many non-mining sectors to pursue new investment opportunities,” Swan said in his weekly economic note released today. “While the dollar still remains at historically high levels, the recent dip in our exchange rate may provide relief for some firms - although it often takes time for exchange rate movements to have an impact on business decisions.”
Swan earlier this month delivered a budget that projected a deficit of A$19.4 billion ($18.7 billion) this fiscal year, blaming the currency’s record stretch above parity with the U.S. dollar for an erosion of company tax revenues. The Reserve Bank of Australia has slashed borrowing costs by 2 percentage points over the past 19 months to 2.75 percent, joining global counterparts in embracing record-low interest rates as it tries to spur industries like construction to take over from mining.
“For the manufacturing sector, a major challenge has been dealing with the sustained high dollar, which has had a profound impact on the future of many firms,” Swan said three days after Ford Motor Co., in Australia since 1925, said it will close its local manufacturing plants in October 2016, eliminating 1,200 jobs.
General Motors Co.’s Holden unit, which traces its roots to 1856 when it started as a saddler business, said on April 8 it will cut about 500 jobs as currency devaluations overseas make its operations among the world’s costliest.
“We must recognize the impact people feel from the economic change we’re going through,” Swan said. “So the government is committed to ensuring affected workers and the communities of Geelong and Broadmeadows are assisted and supported through this very tough period.”
Australian consumer confidence slumped by the most in 17 months in May as the government’s announcement that the budget would remain in deficit overshadowed record low rates, a private survey showed.
“We know these shifts are challenging, but we are equipped to go through them because our fundamental strengths have been preserved and bolstered in recent years,” Swan said. “We’ve come through the biggest resource investment boom in our history with contained inflation and low interest rates, and we’ve come through the biggest global economic crisis in our lifetime with an economy that’s more than 13 percent bigger and an unemployment rate with a ‘5’ in front.”