Australian Industry Must Adapt to High Currency, Hockey Says
Australian manufacturers must adapt and boost productivity to withstand a local currency likely to stay high for years, said Shadow Treasurer Joe Hockey, whose opposition coalition is favored to win elections due in 2013.
The so-called Aussie’s decline in the past five weeks is a temporary “respite” due to volatility emerging from Europe, Hockey said in an interview in Sydney today. Manufacturers “should take the opportunity to restructure their business. We should be doing more to encourage Australian industry to manage a high Aussie dollar,” he said.
The opposition has criticized the government’s handling of the economy as the currency’s strength undercuts the manufacturing sector amid the biggest mining boom in a century. The local currency has gained 37 percent against the U.S. dollar since the start of 2009 and reached $1.1081 on July 27, the highest level since it was floated in 1983.
Measures to cope with the strong local currency should include investing in “tourism businesses offshore or, if you’re a manufacturer, looking at upgrading plant and equipment to improve productivity,” Hockey said. The Liberal-National coalition, which leads Prime Minister Julia Gillard’s Labor government by 22 percentage points in an opinion poll published today, would aim to repeal a tax on carbon within 100 days of winning office, he said.
“There’s an emergence of 2.5 billion people in the middle class in Asia over the next 30 to 40 years, so you’re going to see further increase in demand for the products of Australia,” Hockey said. “That’s a positive thing and it’s going to create a higher long-term dollar.”
Hockey’s views on the currency echo Gillard’s comment Feb. 1 that the Aussie is likely to stay “relatively high for years to come” and businesses should work harder to overcome the drawbacks of a stronger currency.
The value of acquisitions overseas by Australian companies has slumped since the collapse of Lehman Brothers Holdings Inc. in 2008 triggered a global financial crisis.
Such deals amounted to $28 billion in 2011 and less than $20 billion in each of the three preceding years, according to data compiled by Bloomberg. That compares with $87 billion in 2007, the data show.
The Aussie was at 96.70 U.S. cents at 5:46 p.m. in Sydney and has fallen 5.2 percent in the past month.
Australia’s economy is struggling to gain traction as Chinese growth slows and a European debt crisis weighs on consumer confidence. The Reserve Bank of Australia, which meets tomorrow, will likely cut the overnight cash rate target 25 basis points to 3.5 percent, according to the median estimate in a Bloomberg News survey of economists.
The nation’s jobless rate probably rose to 5.1 percent in May from 4.9 percent, according to a separate survey before the government releases employment data on June 7. Australia’s economy probably grew 0.5 percent in the first quarter, compared with a 0.4 percent pace in the final three months of last year, a survey of 24 economists showed before a June 6 report.
“Australia is in a better position than most other Western nations,” Hockey said in a separate interview with Bloomberg Television today. “We have strong demand for our commodities, and even though they probably won’t get there we have a government that at least is promising to deliver a surplus.”
Ending the budget deficit would give the central bank “more room to move” on interest rates, he said.
The opposition coalition leads Labor by 48 percent to 26 percent, according to a Nielsen poll published in the Sydney Morning Herald. The poll of 1,400 voters was conducted May 31-June 2.
Gillard, Australia’s first female prime minister, has faced charges by the Tony Abbott-led opposition that she broke a campaign pledge to oppose the carbon levy, to be introduced July 1, in return for backing from the Greens party to form a government in August 2010.
“As a massive producer of energy, Australia’s mad to be going down this path,” Hockey said today of the carbon tax, pledging to scrap Gillard’s laws should the opposition win power.
“In the absence of an international agreement or comparable measures to price carbon, we’ll be going to go with our direct action plan,” Hockey said. That would include planting trees and creating a fund to help carbon emitters reduce pollution by upgrading equipment.
Demand for Australian commodities such as iron ore, coal and petroleum will be sustainable over the long term as emerging nations in Asia expand, contrasting with the U.S. and European economies, Hockey said.
“I can’t see the woes of the United States and Europe changing for 10 or 20 years,” he said. “Don’t underestimate the enormous growth in Indonesia, Vietnam and India. Because of our recent obsession with China we forget about all these other countries that represent a very significant growth opportunity.”
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