Australia’s falling currency will bolster manufacturing and improve export returns as global prices for commodities such as iron ore and coal slump, according to Treasurer Chris Bowen.
“It does provide some support to manufacturers, and exporters in particular, and that’s a good thing,” Bowen said in an interview broadcast by Sky News yesterday. He replaced Wayne Swan as Treasurer on June 27 amid a change in Labor Party leadership that saw Kevin Rudd become prime minister.
Australia’s dollar has tumbled 13 percent in the past three months, the worst performer among 31 major currencies, and touched the lowest since September 2010 on July 3. The declines offset a drop in the nation’s terms of trade amid China’s weakening demand for commodities, which may curb Australian economic growth and the government’s 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 90.67 U.S. cents at the close in New York on July 5, down from its 2013 peak of $1.0599 in January. The currency has fallen in response to a deterioration in China’s outlook, and as U.S. policy makers signal they may reduce stimulus.
The currency held above $1 from mid-June last year to May 10, the longest stretch above parity with the U.S. dollar since the Aussie was freely floated in 1983.
There are early signs 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 for June, which rose to the highest since February 2012. The gauge remained less than 50, indicating the industry is contracting.
“It’s an early good sign for manufacturing,” he said. “That’s good for confidence.”
Manufacturing and the services industries need to attract investment and “soak up” employment as the Australian economy undergoes a transition from an investment boom in mining, Bowen said. The Reserve Bank of Australia has cut its benchmark interest rate to a record-low 2.75 percent to assist the shift toward employment-intensive industries.
The nation’s jobless rate rose to 5.5 percent in May from 5.2 percent a year earlier, and the government forecasts it will reach 5.75 percent by June 2014. Ford Motor Co. announced May 23 it would end production in the country after nine decades, with the loss of 1,200 jobs.
“Unemployment with a 5 in front of it is still very good compared to the rest of the world,” Bowen said.
Iron ore prices have dropped 23 percent from a 16-month high in February on concern that expansion in China is faltering. Falling commodity values will damp 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 deficits in 2015-16.
“That remains our fiscal strategy,” he said. “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 said.
The government in late December abandoned a pledge to return the budget to surplus last financial year and in May projected a deficit of A$18 billion in the 12 months ending June 30, 2014.
Bowen declined to comment on any specific policy adjustments the reshaped government may unveil ahead of a general election later this year. He ruled out any increase in sales tax and said the government faces “constrained fiscal circumstances” that may limit other initiatives such as boosting the performance of small businesses.
Bowen, 40, was a key backer of Rudd, who ousted Julia Gillard as Labor leader last month after a caucus vote. Elected to parliament in 2004, he became Australia’s youngest Cabinet minister in 2009 when he was appointed by Rudd at age 36. He resigned in March this year after Gillard called a leadership ballot that she won uncontested. He had supported Rudd in an unsuccessful challenge against Gillard in 2012.